Chris from Assignment #1 has now turned 35. (S)he has two children aged five and seven. From the passing away of her grandmother, Chris has inherited $150,000. With this inheritance Chris will pay any outstanding loans, pay down all or part of the mortgage, contribute to an RRSP, contribute to a TFSA, contribute to an RESP, and put
the money in a cash account. The money will be spread among all these loans and accounts. The outstanding mortgage is a reasonable amount based upon the amount in
Assignment #1. Choose an appropriate interest rate for the outstanding balance. The
contribution limit for his/her RRSP is $25,000. His/her contribution limit to a TFSA is
$20,000. The RESP total contribution limit is $50,000 maximum per child, but only the
first $2,500 in any year receives the twenty-percent Canada Education Savings Grant
(CESG). The account has joint beneficiaries, specifically the two children. However,
there is a carry-forward provision that allows an additional $2,500 (for years 2007 to
present) contribution to be made that would be eligible for the CESG provided there is
contribution room. The are no contribution limits to the cash account, all gains are
1. If you decide to pay a lot down towards the mortgage, your choice needs to
make sense financially. You would need to consider if the reduction in the
mortgage would allow him/her to pursue other opportunities. You would also
have to consider the interest rate of the mortgage compared to the rates of return
(s)he could receive elsewhere. If there are any other loans, such as a car loan,
they should, normally, be paid off completely, as they often have a high interest
rate. However, there are car loans that now carry a very low interest rate (under
1 percent), so this should not be considered a universal rule.
2. When investing in each of the accounts, determine if the amount is needed in the
short or long term. Typically, short-term investments are made in debt securities
because of their low volatility. And long-term investments are made in equities
because, in the long run, the return is far higher that with debt. However, risky
equities may have poor, or even negative returns. You may choose riskier
investments, but these should be limited to 10 or 25 percent (The number varies
with investment advisors).
Investments can be made in Canadian or American securities. Your plan must show:
1. How you will allocate the cash among the different options that are available.
2. What debt or equity security you bought.
Assignment #2 Page 2 of 2
3. The price at which you bought it. If you are buying stocks, you must show the
share price and the date of that share price. If you are purchasing American
securities, calculate the cost in Canadian funds by looking at the exchange rate.
You can go to http://www.xe.com/ to calculate Canadian dollar amounts for
quite a number of foreign currencies.
4. Give a reason for your purchase. Examples would be the stability of the
investment, the expected long-term gain, the dividends paid by the company, the
speculative quality of the investment, the diversity, and so on.
5. You can only buy stocks, bonds, or mutual funds. You can also decide to have a
portion of your portfolios as cash and not invested in anything. However,
because this is an assignment about stocks, bonds, and mutual funds, you cannot
buy real property or any other investment that is not a stock, bond, or mutual
6. Your answer should be about 1,000 words.
To guide you in this exercise, you should have investments of about $20,000 to $25,000
each. For example, if an account had between $20,000 and $25,000, then you would
choose only one investment. But if it had between $40,000 and $50,000, then you would
choose two investments. And so on. The only exception to this could be investments in
the RESP, which you might limit to $5,000 or $10,000.
While this is an individual assignment, you are encouraged to talk to others in your
group for ideas. You can use each other’s ideas, but you must provide your own
The mark for this assignment will be determined on how well you support your choices
of investments. The mark will not be influenced at all by the performance of your
investments. In other words, a well-supported investment suggestion for which the
investments do poorly will receive a higher mark than a plan that is not so well
supported, but does have investments that do well.
The assignment must be submitted through Blackboard. The submission must be a
This assignment is due Friday, December 7th by 11:59 p.m. The grace period expires on
Saturday, December 8th at 11:59 p.m. And the last day for submitting this assignment is
Thursday, December 13th at 11:59 p.m. Please remember that to be fair to everyone,
times will be strictly enforced. Also, please make sure that all assignment
documentation is submitted through Blackboard. Assignments submitted any other
way, particularly by e-mail, will not be marked.
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