IPF Exam Theory with Answers
IPF Exam Theory with Answers
Question 1
How to Mortgage Calc
Correct Answer
Will ask for the monthly payment having given the rest of the info (sub this into
ordinary annuity calculation to get the cash flow)
- remember, convert the interest rate to months and to find how many months in
the amount of years the mortgage is.
Then will ask to re-calc at new interest rate at new point of time
- using the original cash flow, original interest rate but new time, find how much
principal is left on the loan
- once you have found remaining principal - sub in this and new interest rate to find
the updated cash flow at the new time point.
might ask to find difference, this is straightfoward.
Question 2
How to Income tax calc
Correct Answer
Get the gross income (including super)
remove super (this is 11.5% of the salary)
This income without super, plus franked dividend (which you must gross up for TI),
plus unfranked dividend, minus allowable deductions plus interest is the taxable
income amount.
use the MTR table to find how much tax on overall income and also remember to
add medicare levy to find the tax. also minus the franking credit from this as tony
says it is 'artificial income'
Then find overall income (minus tax) (this might also include super which is taxed at
15%) you must also tax away the franking credit here!
Page 1 of 76
, IPF Exam Theory with Answers
Question 3
How to Bond Calc
Correct Answer
Same structure as a annuity for coupon paying bond - the CF is the coupon instead,
and you must add the FV/((1+r)^n) at the end to find PV
For Zero coupon paying bond - it is short term hence the PV is the FV/(1+r*(d/365))
Question 4
How to taxation of cap gains calc
Correct Answer
however many of the security sold * (selling price - price bought at) = taxable
income
Tax at marginal tax rate if held less than a year
tax at MTR/2 if held more than a year
Question 5
How to imputation tax system
Correct Answer
Company Level
- Net operating income less interest is taxed at corporate tax rate (30%) which is
earnings distributed to s/hs
S/H level
- calc dividend received (however many shares they have what % of company this is
etc)
- gross this up (div*(1-tc))
- franking/imputation credit = (divgrossedup*tc)
- S/H gets taxed on divgrossedup at MTR thus pays less tax
Net tax liability of s/h is their tax paid less the franking credit (add these and then
divide by div grossed up to get teh effective tax rate)
for classical effective tax rate get the company taxation per the s/h earnings and the
shareholder tax (add) then divide this by company earnings/divgrossed up.
Page 2 of 76
, IPF Exam Theory with Answers
Question 6
How to Negative Gearing Calc
Correct Answer
Sum all income on property less all expenses on property (common value, ie per
year) - this is the value the property is negatively geared at
Times this by the (MTR+medicare) and deduct this to find the net loss after tax (the
tax deducts this)
when property held less than a year - gross up after tax value by dividing it by (1-
(MTR+medicarelevy)) to find the amount it would have to increase by to make the
negative gearing not tax effective (eg cancels out tax benefits)
- divide this value by how much the property was purchased for to see the required
percentage gain required.
when held for more than 1 year apply same process but when grossing up the
negative gear divide it by (1-((MTR+medicare)/2)) for capital gains tax
Question 7
Required return on investment for it to be better than mortgage formula
Correct Answer
the mortgage interest rate divided by (1-(MTR+medicarelevy))
eg - 4.4% mortgage interest
0.044/(1-0.47) = approx 0.083
hence the investment would have to get more than 8.3% for it to be better to invest
in than paying off the mortgage.
Question 8
annuity calc
Correct Answer
get what every annual dollar is, times this buy how much the person wants each
year, then that is how much they will pay!
Page 3 of 76
, IPF Exam Theory with Answers
Question 9
Consumer Finance
Correct Answer
How individuals interact with financial instruments in markets, this includes payment
choices, saving, borrowing, asset allocation, insurance and financial advice.
Personal financial planning and management includes financial wellbeing, types of
personal finance decisions, investments and wealth creation, asset protection and
estate planning alongside planning for retirement. (profession is the use of financial
advisors and industry regulation)
Question 10
Why does personal finance matter
Correct Answer
Linked to the quality of life
Many people are anxious about their finance and regret their financial behaviours
(including investment, saving and budgeting decisions)
People regret not learning more about their finances.
Key drivers of this anxiety are, financing retirement, providing for your family's
future, medical bills, non essentials (holidays etc), house maintenance and
improvements, raising $2k in an emergence, housing costs and rent
Australian households are exposed to severe financial stress and has one of the
highest household indebtness of the OECD countries (highest old age poverty rate
too)
Page 4 of 76
IPF Exam Theory with Answers
Question 1
How to Mortgage Calc
Correct Answer
Will ask for the monthly payment having given the rest of the info (sub this into
ordinary annuity calculation to get the cash flow)
- remember, convert the interest rate to months and to find how many months in
the amount of years the mortgage is.
Then will ask to re-calc at new interest rate at new point of time
- using the original cash flow, original interest rate but new time, find how much
principal is left on the loan
- once you have found remaining principal - sub in this and new interest rate to find
the updated cash flow at the new time point.
might ask to find difference, this is straightfoward.
Question 2
How to Income tax calc
Correct Answer
Get the gross income (including super)
remove super (this is 11.5% of the salary)
This income without super, plus franked dividend (which you must gross up for TI),
plus unfranked dividend, minus allowable deductions plus interest is the taxable
income amount.
use the MTR table to find how much tax on overall income and also remember to
add medicare levy to find the tax. also minus the franking credit from this as tony
says it is 'artificial income'
Then find overall income (minus tax) (this might also include super which is taxed at
15%) you must also tax away the franking credit here!
Page 1 of 76
, IPF Exam Theory with Answers
Question 3
How to Bond Calc
Correct Answer
Same structure as a annuity for coupon paying bond - the CF is the coupon instead,
and you must add the FV/((1+r)^n) at the end to find PV
For Zero coupon paying bond - it is short term hence the PV is the FV/(1+r*(d/365))
Question 4
How to taxation of cap gains calc
Correct Answer
however many of the security sold * (selling price - price bought at) = taxable
income
Tax at marginal tax rate if held less than a year
tax at MTR/2 if held more than a year
Question 5
How to imputation tax system
Correct Answer
Company Level
- Net operating income less interest is taxed at corporate tax rate (30%) which is
earnings distributed to s/hs
S/H level
- calc dividend received (however many shares they have what % of company this is
etc)
- gross this up (div*(1-tc))
- franking/imputation credit = (divgrossedup*tc)
- S/H gets taxed on divgrossedup at MTR thus pays less tax
Net tax liability of s/h is their tax paid less the franking credit (add these and then
divide by div grossed up to get teh effective tax rate)
for classical effective tax rate get the company taxation per the s/h earnings and the
shareholder tax (add) then divide this by company earnings/divgrossed up.
Page 2 of 76
, IPF Exam Theory with Answers
Question 6
How to Negative Gearing Calc
Correct Answer
Sum all income on property less all expenses on property (common value, ie per
year) - this is the value the property is negatively geared at
Times this by the (MTR+medicare) and deduct this to find the net loss after tax (the
tax deducts this)
when property held less than a year - gross up after tax value by dividing it by (1-
(MTR+medicarelevy)) to find the amount it would have to increase by to make the
negative gearing not tax effective (eg cancels out tax benefits)
- divide this value by how much the property was purchased for to see the required
percentage gain required.
when held for more than 1 year apply same process but when grossing up the
negative gear divide it by (1-((MTR+medicare)/2)) for capital gains tax
Question 7
Required return on investment for it to be better than mortgage formula
Correct Answer
the mortgage interest rate divided by (1-(MTR+medicarelevy))
eg - 4.4% mortgage interest
0.044/(1-0.47) = approx 0.083
hence the investment would have to get more than 8.3% for it to be better to invest
in than paying off the mortgage.
Question 8
annuity calc
Correct Answer
get what every annual dollar is, times this buy how much the person wants each
year, then that is how much they will pay!
Page 3 of 76
, IPF Exam Theory with Answers
Question 9
Consumer Finance
Correct Answer
How individuals interact with financial instruments in markets, this includes payment
choices, saving, borrowing, asset allocation, insurance and financial advice.
Personal financial planning and management includes financial wellbeing, types of
personal finance decisions, investments and wealth creation, asset protection and
estate planning alongside planning for retirement. (profession is the use of financial
advisors and industry regulation)
Question 10
Why does personal finance matter
Correct Answer
Linked to the quality of life
Many people are anxious about their finance and regret their financial behaviours
(including investment, saving and budgeting decisions)
People regret not learning more about their finances.
Key drivers of this anxiety are, financing retirement, providing for your family's
future, medical bills, non essentials (holidays etc), house maintenance and
improvements, raising $2k in an emergence, housing costs and rent
Australian households are exposed to severe financial stress and has one of the
highest household indebtness of the OECD countries (highest old age poverty rate
too)
Page 4 of 76
