Question

Task 1

You have just started a new job and your employer has enrolled you in ANZ savings fund scheme.

This is the first time you have been enrolled in the savings fund scheme of ANZ and you decide not to “opt out”.

You are interested in estimating how much your savings fund could be worth when you retire.

You make the following assumptions:

• You have just turned 30 and will retire in exactly 35 years when you are 65.

• Your salary is $50,000 this year and you expect this to increase by 3% every year.

• You can choose to contribute either 3% or 8% of your salary into your savings fund each year.

• Your employer must contribute 3% of your pay into your savings fund each year. You can ignore any tax implications and assume your account receives the full 3%.

• You will be entitled to the annual member tax credit of $521.43 which will be credited into your savings fund at the end of every year.

• Your savings fund will invest in a diversified portfolio of assets to earn a return on your investment. Of course, there is uncertainty around the actual annual rate of return that your fund will earn over the 35 years but you decide that 6% and 12% represent a good range of potential rates of return to conduct your analysis on.

• Regardless of the return earned, the manager of your savings fund will charge a management fee of 1.0% at the end of each year, based on the opening balance of your fund each year.

• You will make no withdrawals or additional contributions (other than those mentioned above) to your fund until you retire in 35 years.

• For simplicity, assume that all contributions to your savings fund are made once per year, at the end of the year. The first lot of contributions will be made in one year from today.

Construct a spreadsheet that will allow you to answer the following questions.

1. What will be your expected annual salary when you are 45 years old?

2. How much will be in your savings fund account at the start of that year if you contributed 3% of your salary and the fund earned 6%p.a.?

3. How much will be in your savings fund account when you retire if you contributed 3% of your salary and the fund earned 6%p.a.?

4. How much will be in your savings fund account when you retire if you contributed 8% of your salary and the fund earned 12%p.a.?

Task 2

You and three friends have decided to jointly purchase a property to live in (it has four

separate bedrooms and a communal bathroom, kitchen and living area). Your portion of

the purchase price is $120,000. You have some money saved in your ANZ savings fund account scheme (see TASK 1) which you are able to withdraw to help finance the house purchase but you will still need to borrow $100,000.

Your local bank is willing to lend you $100,000 for a period of 10 years at an interest

rate of 5%p.a. The loan must be repaid, over the 10-year period, by equal monthly

instalments. The first payment will occur exactly one month after you borrow the money.

Construct a spreadsheet that will allow you to answer the following questions.

5. What is the amount of each monthly instalment?

6. How much interest will you pay in the 24th month of the loan?

7. What will be the balance outstanding on the loan after five years?

8. How much interest will you have paid in total over the life of the loan?

Task 2

You and three friends have decided to jointly purchase a property to live in (it has four

separate bedrooms and a communal bathroom, kitchen and living area). Your portion of

the purchase price is $120,000. You have some money saved in your ANZ savings fund account scheme (see TASK 1) which you are able to withdraw to help finance the house purchase but you will still need to borrow $100,000.

Your local bank is willing to lend you $100,000 for a period of 10 years at an interest

rate of 5%p.a. The loan must be repaid, over the 10-year period, by equal monthly

instalments. The first payment will occur exactly one month after you borrow the money.

Construct a spreadsheet that will allow you to answer the following questions.

5. What is the amount of each monthly instalment?

6. How much interest will you pay in the 24th month of the loan?

7. What will be the balance outstanding on the loan after five years?

8. How much interest will you have paid in total over the life of the loan?

Answer 1