FINA 200 - Personal Finance ©
Sample Case 2 Solution
From Fall 2022, Section EC
NOT GRADED
Covering Chapters 8 – 10 and 13 – 16
Student Name: Student ID:
PLEASE NOTE INSTRUCTIONS BELOW
There are 13 pages to this Sample Case Solution including the cover page – please
ensure that you have all 13 pages.
Sample Case 2 Solution consists of two sections.
Tables can be found at the end of the Case to help respond to some of the questions.
Outside research/sources will be required.
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Section I: Five (5) Multiple-Choice Questions (5 marks - 1 mark each)
Highlight AND underline your response.
1) Sunni turned 21 years old on November 1, 2022. As she had never contributed to her
Tax-Free Savings Account (TFSA) prior, she invested a lump-sum of $24,000 in her newly
opened TFSA on January 1, 2022, using funds from her company bonus. As of November
1, 2022, the funds had a market value of $30,000. She withdrew $30,000 on November 2,
2022, to buy a used car. Sunni however found a car for $24,000 and decided to put the
$6,000 difference back into her TFSA. She does not want to incur any penalties in her
TFSA and has come to you for advice. Which statement is incorrect?
See Table C.
a) Sunni is not able to re-contribute $6,000 in her TFSA in 2022.
b) Sunni is able to contribute $12,500 on January 1, 2023.
c) Sunni is able to contribute $6,000 in her TFSA in 2022.
d) Sunni is able to contribute $6,000 on January 1, 2023.
e) Sunni is able to contribute $6,500 on January 1, 2023.
2) Developing fully customized estate plans can protect your family, safeguard assets, bring
peace of mind and leave a legacy for future generations. If you don’t have a Will, every
province and territory has laws that set out who will inherit your assets and your estate will
be administered in accordance with these laws. This essentially leaves crucial aspects of
your estate to be dealt with based on what was decided by _________________.
a) your sibling(s)
b) your parent(s)
c) the government
d) your employer
e) your spouse/partner
3) Which of the following statements are false? One of the duties of the Executor (Liquidator
in Quebec) is to ___________________________________.
I. collect any money owed to the Estate.
II. prepare the tax returns.
III. distribute the assets as specified in the Will.
IV. notify anyone who has an interest or potential interest in the Estate.
V. discharge the liabilities.
VI. is to enact the Power of Attorney.
VII. is to file the tax returns.
VIII. is to manage the assets if you become incapacitated.
a) I, II, III and VII
b) III, IV, V and VI
c) VI, VII and VIII
d) II, VI and VIII
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e) I, IV and V
4) The decision by Elon Musk to take Twitter private means the company will de-list from
the New York Stock Exchange and no longer trade publicly as of November 8, 2022.
Christine had owned Twitter shares and is looking to calculate her return on her
investment prior to Elon Musk’s takeover. She invested in Twitter shares when they were
trading at $47 US/share just a year ago. She was quite happy with her investment until
Elon Musk purchased the company. As of November 8, 2022, the shares were worth
$54.20 US/share and no longer trade after that date. Twitter shares have never paid
dividends. What is Christine’s return during this holding period of one year?
a) 15.32%
b) 22.14%
c) 12.62%
d) 11.12%
e) 18.20%
𝐻𝑃𝑅=$54.20−$47 = 15.32%
$47
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5) Rachel required a mortgage for the purchase of her home. The bank where she obtained
the mortgage also sold her mortgage life insurance. When she pays down the principal on
her mortgage, what happens to her coverage under her mortgage life insurance?
I. If Rachel dies, the amount of her mortgage life insurance will cease, and the
mortgage will be paid off.
II. The bank is protected should Rachel default on her mortgage.
III. The amount of her mortgage life insurance is linked to the declining balance
of her mortgage and will go down over time.
IV. The amount of her mortgage life insurance is linked to the declining balance
of her mortgage and will cease once the mortgage is fully paid.
V. The amount of her mortgage life insurance will not change over the period of
her mortgage.
VI. The amount of her mortgage life insurance is linked to her mortgage and
will steadily increase over time.
a) I, II, IV and VI
b) II, III and V
c) I, III and IV
d) I and II
e) I and VI
Section I completed, continue to Section II.
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Section II: Five (5) Mini-Cases (20 marks)
Please write your response in the template or space provided (highlight AND
underline your response).
Mini-Case A: (2 marks)
Lauren, age 65 believes that her Old Age Security (OAS) pension will be subject to clawback.
She is trying to understand what it means. The maximum monthly OAS pension in 2022 is
$685.50. Lauren’s net income is $120,000. The clawback starts at the minimum threshold of
$81,761 to the maximum threshold of $134,626. How much will Lauren keep of her OAS when
the clawback rate is 15%? (1 mark)
Lauren’s calculation: (1 mark)
$120,000-$81,761 = $38,239 x 15% = $5,735.85
$8,226 - $5,735.85 = $2,490.15 is the amount that Lauren gets to keep of her $8,226 OAS
pension received after clawback. She will need to reimburse $5,735.85 via her 2022 Federal tax
return.
Lauren’s son, Lorne has been having significant medical issues since he started vaping at the
age of 14. At the beginning of 2022, he switched to smoking a pack of cigarettes each day and
no longer vapes. He knows that this is not any better but has tried many options to quit. As Lorne
likes to save money, he thought of running some calculations as this might be more motivating
for him to quit. If he stopped smoking as of his birthday on December 1, 2022, when he turns 23,
he could save $15 a day by not buying cigarettes. If instead, he saved this money and invested it
at a rate of 7% compounded weekly, how much would Lorne have at age 65. Days per year: 365;
weeks per year: 52. (1 mark)
Lorne’s calculation: (1 mark)
P/Y=365; C/Y=52
n = 15,330; i = 7; PMT = $15; PV=0
Solve for FV = $1,399,159.86
Lorne will have savings of $1,399,159.86 at age 65 (1 mark)
Mini-Case B: (1 mark - .5 marks each)
Your Uncle Mitch was a science professor at Concordia but lost his voice permanently. He is
being interviewed to work in the research laboratory doing trial research. He is upset that if he
takes this position, his insurance company won't pay disability benefits as it is a related or similar
occupation. There are three types of coverage for disability benefits. Use the words below to fill
in the blanks, you can use them more than once.
1. Own Occupation
2. Any Occupation
3. Regular Occupation
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Your uncle’s ability to claim disability benefits depends on his policy’s meaning of disability. After
you review his disability insurance policy, you understand that he had _Any Occupation (accept
Regular Occupation) disability insurance policy which is why the insurance company won’t pay
disability benefits.
Uncle Mitch should have had disability insurance under ________________ Own Occupation as
this would provide the greatest freedom for him to collect benefits while working in a related job.
Mini-Case C: (8.75 marks – .25 marks each)
Your Aunt Nelly has come to you with investment questions; respond to her questions below.
a) Aunt Nelly is confused about asset allocation and what she should do as she gets closer
to her retirement. She is unsure if the following statement is true or false: One of the
reasons for changing your asset allocation is a change in your time horizon in your stage
in life. In other words, as you get closer to your investment goal, you'll likely need to
change your asset allocation. Most people investing for retirement hold less stock and
more bonds and cash equivalents as they get closer to retirement age. (.25 marks)
a. True
b. False
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b) Aunt Nelly is unsure which statement is false about mutual fund Fund Facts? (.25 marks)
a. Fund Facts is a short, easy-to-read document designed to provide investors with key
information about a mutual fund.
b. Fund Facts explain the basics of what the mutual fund invests in, the risks involved,
how the fund has performed, and the costs of ownership.
c. Fund Facts describe the returns that you can expect in the future should you decide to
invest in the mutual fund.
d. Fund Facts provide an overview of a fund including the fund's investment objective,
risk level, costs, past performance, and holdings details.
c) Which of Aunt Nelly’s friends has a diversified portfolio? (.25 marks)
a. Vasu works in IT and only invests in technology stocks such as Amazon, Microsoft,
Apple.
b. Nabil has his money in a savings account at the bank and just opened a Tax-Free
Savings Account (TFSA) with the money invested in a Money Market mutual fund.
c. Laura graduated with a degree in Fashion Design and is a buyer for Zara. She only
invests in retail (specifically clothing) as this is her field of work and a comfortable
sector for her.
d. Ava invests in energy stocks, and has now added technology stocks, biotech, utility
companies, real estate holdings, and other sectors to her portfolio.
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d) Help Aunt Nelly understand the typical investment income received by various mutual
fund types. Insert an “X” in the table where investment income applies. (2.75 marks)
Typical income received by various mutual fund types
Foreign
Canadian
Capital income or
Interest Dividends
gains other income
Canadian money market mutual fund
Canadian equities mutual fund
U.S. equities mutual fund
International equities mutual fund
Balanced mutual fund
Typical income received by various mutual fund types
Interest Canadian Dividends Capital gains
Foreign income or
other income
Canadian money market
mutual fund X
Canadian equities mutual fund X X
U.S. equities mutual fund X X
International equities mutual
fund X X
Balanced mutual fund X X X X
e) Provide Aunt Nelly with five (5) advantages of investing in mutual funds. (1.25 marks)
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1.___________________________________________________________________________
2.___________________________________________________________________________
3.___________________________________________________________________________
4.___________________________________________________________________________
5.___________________________________________________________________________
• Portfolio diversification can be achieved by investing in a fund that contains a wide
array of investments to reduce risk thereby reducing the likelihood of large losses
• Mutual funds can provide lower transaction costs because of their buying power (i.e.
economies of scale due to buying and selling volume which reduces transaction
costs for investors)
• Marketability for ease with which an investor can convert an investment into cash
• Modest initial investment (around $500 to get started)
• Ability to switch between mutual funds within the same fund corporation (same family of
funds) without triggering capital gains/losses
• Possibility of reinvesting (dividends, capital gain distributions)
f) Provide Aunt Nelly with five (5) disadvantages of investing in mutual funds. (1.25 marks)
1.___________________________________________________________________________
2.___________________________________________________________________________
3.___________________________________________________________________________
4.___________________________________________________________________________
5.___________________________________________________________________________
• Management fees and other costs vary substantially among funds (they can be very
high!)
• Investor has no control over the investments that are purchased and/or sold within the
mutual fund
• Fund can be invested in a group of poorly performing investments
• Lack of control over when the portfolio manager decides to buy and sell within the
mutual fund, which may lead to an unexpected tax liability (note: the investor never
receives the gain as the monies are reinvested within the fund but the investor is still
taxed on the gain from the sale)
• May need to redeem when the market is not favourable (liquidity within the mutual fund
can be low if a large number of investors want to sell)
• Tax inefficiencies
g) Aunt Nelly has heard of Ethical funds but does not know what this is. Explain Ethical funds to
Aunt Nelly. (.25 marks)
_____________________________________________________________________________
_____________________________________________________________________________
Firms that have high standards of corporate governance
Avoids firms viewed as offensive by some (i.e. producers of cigarettes, guns, fossil fuels)
h) Explain to Aunt Nelly what Exchange-Traded Funds (ETFs) are. (.25 marks)
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_____________________________________________________________________________
_____________________________________________________________________________
• Exchange-Traded Funds (ETFs) are designed to track other assets such as a
particular stock index (like index funds), a particular bond index, a commodity, or a
basket of assets; they are traded on a stock exchange just like closed-end funds, and
their share price changes throughout the day.
• Are funds that track indexes like the NASDAQ 100 index, S&P 500, Dow Jones, etc.
i) Provide Aunt Nelly with three (3) benefits that ETFs have that are similar to mutual funds?
(.75 marks)
1.___________________________________________________________________________
2.___________________________________________________________________________
3.___________________________________________________________________________
Diversification
Economies of scale
Marketability
j) Provide Aunt Nelly with three (3) differences between ETFs and mutual funds? (.75 marks)
1.___________________________________________________________________________
2.___________________________________________________________________________
3.___________________________________________________________________________
Does not have a Net Asset Value Per Share
Trades on the stock exchange and has a share price
Purchased in real time, whereas mutual funds are purchased at the end of the day
Does not have a load structure; initial fee you pay is the brokerage commission for
completing the transaction
MER are generally lower than what you would find for a mutual fund
Tend to be more tax efficient since there is not as much active trading in an ETF
k) Explain to Aunt Nelly what Segregated Funds are. (.25 marks)
_____________________________________________________________________________
_____________________________________________________________________________
Insurance products that are regulated through the insurance legislation of the province in
which they are sold.
Segregated funds, like mutual funds, are market based investments. A large pool of
money belonging to many people is invested in stocks, bonds or other securities.
However, because segregated fund contracts are insurance contracts, they have special
benefits mutual funds do not have.
l) Provide Aunt Nelly with two (2) benefits of Segregated Funds. (.5 marks)
1.___________________________________________________________________________
2.___________________________________________________________________________
• Principal Protection: Offer a guarantee on your deposits when the contract matures
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• Usually matures 10 years after the date of purchase
• Deposit guarantee will be between 75 and 100 percent of deposits
• Death Benefit Guarantee: Determination of the value of the guarantee is made at the
time of death of the policy owner
• Potential Creditor Protection: Creditor protection may be possible because provincial
insurance laws provide that life insurance contracts such as segregated funds, may be
exempt from seizure by creditors (if you face lawsuits or bankruptcy). You may not have
creditor protection from Canada Revenue Agency (CRA) if income tax liabilities are
outstanding.
Mini-Case D: (2.5 marks)
Two years ago, Marc invested $7,000 in the Call of Duty Mutual Fund which invests in gaming
companies; he received 7,000 units. As of November 25, 2022, Marc’s investment grew to
$7.00/unit! Marc needed money to buy a PS5 and decided to sell 150 units. Marc is in the top
marginal tax bracket. After taxes, deferred sales charges and commissions are paid, calculate
the amount Marc will have remaining to buy his PS5 as he knows he needs around $700.
Note: Use the Declining Redemption Schedule below to determine the back-end load fee using
the second year (the amount of the fee is based on the value of the fund when it is redeemed
(sold)). Marc’s broker charges a 2% commission on the sale after the Deferred Sales Charge is
applied. (2.5 marks)
Declining Redemption Schedule
Year funds are redeemed/sold Deferred Sales Charge
Within the first year 6%
In the second year 5%
In the third year 4%
In the fourth year 3%
In the fifth year 2%
In the sixth year 1%
After the sixth year 0%
Marc’s calculation:
Step 1: tax calculation
Proceeds $1,050 ($7 x 150 = $1,050)
Less expenses:
Deferred sales -$ 52.50 (.5 marks)
Commission -$ 19.95 (.5 marks)
Less Cost - $150 ($7,000/7,000 units = $1 x 150 units sold = $150)
Capital gain $827.55
Taxable capital gain $220.58 ($827.55 x 50% x 53.31% = $220.58)
Step 2: Amount Marc will receive in his pocket
Proceeds $1,050 (.5 marks)
Less:
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Deferred sales -$ 52.50 (.5 marks)
Commission - $ 19.95 (.5 marks)
Taxes -$220.58 (.5 marks)
Net amount $756.97 to be used for the purchase of Marc’s PS5 (.5 marks)
IF student did not deduct expenses in their tax calculation:
Step 1: tax calculation
Proceeds $1,050 ($7 x 150 = $1,050)
Less Cost - $150 ($7,000/7,000 units = $1 x 150 units sold = $150)
Capital gain $900
Taxable capital gain $239.90 ($900 x 50% x 53.31% = $239.90)
Step 2: Amount Marc will receive in his pocket
Proceeds $1,050 (.5 marks)
Less:
Deferred sales -$ 52.50 (.5 marks)
Commission -$ 19.95 (.5 marks)
Taxes -$239.90 (.5 marks)
Net amount $737.65 to be used for the purchase of Marc’s PS5 (.5 marks)
NOTE: As of June 1, 2022, deferred sales charges (DSC) are banned. This means that fund
companies can no longer charge this option in connection with the sale of mutual funds. If
however, you bought a mutual fund with the DSC option before June 1, 2022, you will not see
any changes. The redemption fee schedules on your DSC holdings will run its course. If you
hold your fund until the end of the redemption fee schedule, you won’t pay a fee when you
sell your units or shares. But you will be charged DSCs on holdings sold before the expiry of
the redemption fee schedule as per the example above.
Mini-Case E: (.75 marks)
Maddie is looking at protecting herself by buying the appropriate insurance. Complete the
sentence using the words below (words can be used multiple times). (.15 marks each)
a) Maddie’s family relies on her income as she is the breadwinner in the family. Should she
die, the loss of income will be protected by ____Life Insurance___.
b) Maddie had a car accident in which another person in her car was injured. The medical
bills and liability will be protected by Auto Insurance (accident benefits).
c) Maddie’s car accident resulted in significant damage to her car. The car repairs will be
covered by Auto Insurance (collision).
d) Maddie’s car accident resulted in another person in the other driver’s car to be injured.
The medical bills and liability will be protected by Auto Insurance (liability).
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e) Maddie’s neighbour came by for a visit over the weekend and fell down the stairs in
Maddie’s home. The ambulance was called as her neighbour had significant injuries. The
medical bills and liability will be covered by Homeowner’s Insurance (liability).
Auto Insurance (Collision) Mortgage Default Insurance Convertible mortgage
Health Insurance Life Insurance Disability Insurance
Casualty Insurance Long-Term Care insurance Tenant Insurance
Homeowner’s Insurance Auto Insurance (Accident Auto Insurance (Liability)
(Liability) Benefits)
Mortgage Loan Insurance Homeowner’s Insurance Lawsuit
(property damage)
Umbrella insurance Emergency Fund Personal Balance Sheet
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The End
Good luck!
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TABLE A
TABLE B
TABLE C
Tax-Free Savings Account (TFSA): Annual Limits
Years Annual Limit Years Annual Limit
Year started 2009 - 2012 $5,000/year 2016 - 2018 $5,500/year
2013 - 2014 $5,500/year 2019 - 2022 $6,000/year
2015 $10,000/year 2023 $6,500/year
TABLE D
Registered Retirement Savings Plan (RRSP): Annual Limits
Formula for RRSP contribution limit: 18% of your previous year's earned income less your previous year's
pension adjustment to an annual maximum.
Year Annual maximum contribution limit
2020 $27,230
2021 $27,830
2022 $29,210
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2023 $30,780
TABLE E
Home Buyer’s Plan (HBP)
Withdraw up to $35,000 per borrower and up to $70,000 per couple.
15 years to pay back the amount withdrawn
TABLE F
Time Value of Money Formulas
Simple Interest
Future (FV) of a single dollar amount
Present Value of a single dollar amount
Future Value of an annuity
Present Value of an annuity
Interest Rate Conversion
Time Value: Simple interest:
FV = Maturity value or Future value I = Interest earned
PV = Principal or Present value P = Principal or Present Value
PMT = Periodic annuity payments r = annual interest rate
n = Number of compounding periods per year t = time (in years)
i = Annual interest rate
t = Time (in years)
EY = Effective yield
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