Principals- Integrity, Objectivity, Competence, Confidentiality,
Professionalism, Diligence
Annual Percentage Rate (Nominal Rate) ROR–ignore compounding
effect(m x km)
Effective Annual Rate mEAR) – Restated from APR to include
compounding (1+km) -1 / If km is = 7%weekly, Pv=-4, N=52, I= 7, Fv= ?/
Hurdle Rate= The min acceptable rate of return é min attractive rate of
return
Arithmetic - assumes no compounding – is a straight average of all the
ROR
Geometric – Assume compounding- 1.17 x 1.08 = 1.2636 FV, PV= -1, n=2,
i= ?
Ordinary or deferred annuity = occurs and the END of the period
Annuity Due = Occurs at the BEG of the period.
Constant Growth
FVCGA = x ((1+k) – (1+g) ) / (k-g) )) k=ROR, g= (inflation) annual increase
in X
FVCGAD (BEG)= (1+K) (FVCGA)
n
PVCGA = x (1- (1+g / 1+K) / (k-g) )
PVCGAD (BEG) = (1+k) (PVCGA)
Fisher Equation
Real Interest Rate (taking inflation back into a real rate) = (1 + Nominal Interest or Ordinary income with Surtaxes
rate / 1 + inflation rate) -1
Nominal Interest Rate (putting inflation back into real rate) = [(1+ real
rate) (1 + Inflation Rate)] – 1 Tc = Combined marginal tax rate, Tf= marginal federal
Nominal / $ Current = what they actually are / were / will be (includes rate, Tp= marginal provincial rate, Tsp= Provinvial surtax rate on the
inflation) marginal provincial tax
$ Real / $ Constant – without inflation Dividends with Surtaxes
Nominal – Interest or Discount Rate = with Inflation Tc(dividend) = [(1+G)tf – DTCf]+ [(1+G)tp – DTCp] (1+tsp)
Real – interest or discount rate = without inflation Capital Gains with Surtaxes
Inflation on prices = prices x (1 + inf)^years Tc(gain) = (.5Tf) + .5Tp(1+Tsp)
Financial Planning Process (family) After-Tax Discount Rate
1. Goal setting : These must reflect you own personal values Kt = Kb (1-Tc) Kb=beforetax
2. Actions plan: you must make decisions for yourself
3. Take action
4. Feedback/ monitoring progress
Financial Planning Process (Professional)
1.Establish the client-planner engagement
2. Gather client data; determine your goals and expectations
3. Clarify your present financial status; identify any problem areas and
opportunity
4.Develop and present the financial plan
5. Implement the Financial Plan
6.Monitor the financial Plan
Wn=Wo(FVIF n,k) + (E-C) (FVIFA n,k) >>> Wn=saving at retirement,
Wo=saving now, n= years to retire, K=rate of return on your savings,
E=earning each year, C=consumptions each year, E-C= Saving each year
until retirement
Wn = C boy (PVIFA n,k)
Personal Debt Management (Tips)
1.Consumer debt should not exceed 20% of take-home pay
2. Families should pay off consumer debt as soon as possible
3. Covert consumer loans into investment loans (if possible)
4.Before more consumer borrowing, check family has sufficient cash flow to
support debt
5. Pay off higher interest debt first (could include attaining more lower
interest debt, such as line of credit)
Child support above 150k income. .monthly pension is 0.74%,(1 child) , Max CPP 2013 contribution is $51,100 (YMPE) first $3500 of earning is
1.26%, 1.54%, 1.84% exempt from contributions. (Years basic Exemption) Contribution Rate is
Mediator – Independent third party who helps 4.95% of CPP pensionable earnings
Arbitrator – Like a private judge, binding, cost more, but faster
Chatper 7 Max EI 2013 is $47,400 and contribution rate is 1.88%
Indexation – tax brackets are increased each year to keep up with inflation
>For employees, both CPP contributions and EI premiums are included in
the non-refundable tax credits.
>For CPP, employers pay the same as employees and these contributions
are tax deductible to the employer. Self-employed people pay both the
employee’s share (and include it in the nonrefundable tax credits) and the
employer’s share (which is tax deductible). >For EI, employers pay 1.4 times the premiums paid by employees. The ->= Total amount of medical expenses – fixed amount ($2,171 in 2013
employers’ share is tax deductible. Most self-employed people do not make indexed to inflation) X lowest marginal tax rate
EI contributions. ->E.g. $5,000 medical expenses results in tax deduction of $580 =
(5000 – 2171) *.205
Disability Tax Credit
->Severe prolonged impairment results in person being unable to perform at
least one normal living function, e.g. dress or feed oneself
->Non-refundable tax credit. Specified amount ($7,756 in 2013 indexed to
inflation) multiplied by lowest marginal tax rate = (7756*.205 = $1,592)
->May also deduct care expenses and support costs if incurred to attend
school or earn income – deducted from net income
Registered Disability Saving Plan
->Tax assisted vehicle to save for retirement. Must be eligible for DTC.
->No tax deduction, but government grants, income deferral (like RESP)
->Money accumulates in 4 ways:
Chapter 8 1.Contributions
Main strategy on Income tax planning No annual limit; lifetime limit of $200k for beneficiary; no contributions after
Income tax deferrals – time value of money and potential to pay in years beneficiary turns 59; anyone can contribute to the plan and RRSP or RRIF
can be rolled in tax-free for disabled child or grandchild
with lower marginal tax rate
Income splitting – by dividing income with spouse, may pay less overall, as 2.Canadian Disability Savings Bond – government contributions
marginal rates may be lower when split ->$1,000/yr.; $20,000 lifetime limit; income tested – reduced if income is
Income spreading – distributing irregular high income over multi years to over $25,356 and eliminated if over $43,561 (indexed)
reduce overall income ->based on family net income for minor, after 18 based on beneficiary (and
Tax shelters – TFSAs, flow-throughs, etc. sp
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