# Part A (50 per cent of the marks) Essay

Part A (50 per cent of the marks)
Question 1
Panna wants to buy a new suite of furniture for her flat. The furniture costs £3000 from a furniture store in her local town. The saleswoman suggests that Panna takes out a loan from the store’s finance company to fund the purchase of the furniture. The repayment loan from the finance company would be at a fixed APR of 9 per cent for a repayment term of between one and four years, which Panna can select herself. The loan would take the form of a secured loan.

Panna has £3000 in a variable rate online instant access account with her building society, currently earning 3 per cent p.a. after tax. She has no other savings.

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She also has the possibility of taking an unsecured loan from her own bank of £3000 where the variable APR charged is currently 12 per cent.

Panna has also just received a letter from a different bank to apply for a credit card on which the variable interest rate on new purchases for the first four months would be 0 per cent p.a. and would then rise to the normal variable rate (currently the normal rate is 18 per cent p.a.).

1.Panna could use all her savings to fund the purchase of the furniture outright. State one advantage and one disadvantage of this course of action. (5 marks) 2.Using the ‘Saving and Borrowing Calculator’ (on the DVD-ROM or online), calculate the monthly repayments required and the total amount of interest paid if Panna used a loan from the store’s finance company, at an APR of 9 per cent, to fully fund the purchase over both (a) one year, and (b) three years. What factors would Panna need to consider in deciding between the one-year or three-year payment period? (8 marks)

3.What would be the advantages and disadvantages of using each of the three forms of debt available to Panna to purchase the furniture? (12 marks) (Total: 25 marks)

Question 2
Adan (26) and Jane (25) are a young couple living together and expecting their first child. Both are currently in full-time employment – Adan is a designer and Jane is a relatively new teacher. Jane is due to give birth in six months’ time. Adan and Jane are starting to make preparations for the birth of their child. They have decided against getting married for the time being, but have nevertheless decided to manage their financial transactions through a joint account in their local bank. They first draw up a cash flow statement outlining their monthly income and expenditure. They put aside any surplus left over at the end of the month. They want to plan ahead for how their financial situation will change once their child is born.

Their income and expenditure before the birth of their child is as follows:

Income before the birth of their child:

•Adan’s net monthly salary = £2500
•Jane’s net monthly salary = £2100
Monthly expenditure before the birth of their child:

•Mortgage = £900
•Food and household items = £1000
•Entertainment (mainly eating out and cultural events) = £500 •Insurances = £200
•Direct debits (council tax, water, telephones, TV licence, electricity, gas, cable TV) = £600 •Travel to work costs = £150 (Adan £100, Jane £50)
They realise that things will change significantly after the birth happens, as follows.

Jane thinks she will be taking ten months’ maternity leave after the birth of their child. Her employer’s maternity package is full pay for the first six months, and then on the statutory maternity pay, worth about £94 net per week, for the further four months. They looked into Adan taking some paternity leave but have decided against it, and he will carry on working full time.

In the first month after the birth, they plan that they will also have to pay a one-off £800 for baby equipment, a pram, a cot and a stock of clothes for the new baby.

They plan that their monthly food and household items costs will also go up by 20 per cent after the birth of their child. Travel spending may vary depending on what Jane decides about returning to work. All other spending remains the same.

With the baby, the family also receives a £20.30 Child Benefit payment each week.

They will put aside any surplus left over after their spending commitments have been made.

1.Calculate whether Adan and Jane are in surplus or deficit, and by how much: a.each month before the birth of their child. (5 marks)
b. in the first month after the arrival of their child. (5 marks) c.each month when Jane takes a further four months of leave at statutory maternity pay. (5 marks) 2.Jane also has the option to go back to work full time six months after the birth (after the period when she is entitled to full pay). Adan and Jane are thinking through some other options. Option 1: Jane could work three days per week. She would then get 60 per cent of her current monthly salary. On her days off, Jane will look after their baby. For the remaining three days, the baby goes to a full-time nursery which charges £50 a day. Jane’s work travel costs would be £30 per month.

Option 2: Jane returns to full-time employment and Adan and Jane have their baby looked after in formal childcare for five days at the same rate of £50 a day.

Calculate the financial situation of the household under each of these two options.

Discuss which of the two options is financially more attractive to Adan and Jane and any other budget changes they may want to consider. (10 marks)

(Total: 25 marks)

Word limit for Part A: 600 words

Part B (50 per cent of the marks)
Discuss the possible changes to income that might happen over an adult life-course. How do such income patterns over a life-course affect financial planning?

Word limit for Part B: 900 words