Reference no: EM132365810

Assignment Questions -

Q1. You have commenced work as a certified Financial Planner. Your supervisor has provided the following financial data for a new client Brant Jerome. The client turned 34 years old today and plans to retire when she turns 67. The client owns a diversified share portfolio which is valued today at $47,000. It is expected that this portfolio will earn (on average) 7% per annum indefinitely. Brant also has a superannuation account with a balance of $78,000 to which he currently contributes $1,000 per month. The superannuation account is expected to continue to earn 8% per annum. At his retirement your client plans to consolidate his financial holdings and purchase a monthly annuity as a pension to fund his planned lifestyle. Brant believes he will need to self-fund his retirement until he reaches the age of 85 at which time, he would like to have $120,000 remaining to fund any costs not covered by the age pension. During the pension phase of his retirement Brant will adopt a Balanced investment strategy which will return 5% pa (compounded monthly) on his annuity investment.

(i) What will be the value of Brant's financial assets when he retire satage 67? Present all calculations to support your answer.

(ii) What will be the monthly pension amount that Brant will receive on his retirement? Present all calculations to support your answer.

Q2. This question relates to material covered in Topics 1-5. This question addresses the 1st, 2nd and 3rd subject learning outcomes.

(a) Bradley hates taking risk with his money; "I hate shares and property, I know a lot of people who have lost money in those investments". As a result he will only consider bank guaranteed investments. Bank guaranteed investments are returning 1%. Bradley has a marginal tax rate of 32.5% and pays medicare levy of 2%.

i. Assuming he pays tax at 32.5% plus medicare levy, on the income from his investment, is he preserving the real dollar value of his investment if inflation is 2.5% per annum? Show your workings to justify your answer.

ii. When considering your calculations, how would you explain the benefits of risk to Bradley?

(b) Explain the Australian dividend imputation credit system and how it applies in Australia. Include an analysis of how the receipt of franking credits will result in differing returns for Australian resident and international investors.

(c) Below is the monthly share price data for A2 Milk Company for the 2018 financial year. Note: no dividends were declared for the 2017-18 FY.

i. Calculate the 2017-2018 monthly holding period returns (in both $ and %) for A2M.

ii. Calculate the average monthly return (%) for A2M.

iii. Using the data provided calculate the annual holding period return (in both $ and % terms) for an international (non-Australian) shareholder of A2M.

(d) The monthly data for the Australian All Ordinaries share price index is below.

i. Calculate the monthly holding period returns (%) for the Australian share market (MKT) during 2017-2018 FY.

ii. Calculate the average monthly holding period return (%) for the MKT (ALL ORDS).

iii. Calculate the annual holding period return (in % terms) for the Australian share market (MKT) (as proxied by the All Ords index) during 2017-2018 FY.

iv. Using Excel (XL) prepare a line graph comparing the monthly returns for A2M and the return on the Australian (MKT).

v. Calculate the risk for 2018 as measured by standard deviation of both A2M and the MKT.

vi. According to Reuters Finance A2M Ltd has a Beta of 1.04. In terms of share investment, define what Beta represents. What does A2M's Beta of 1.04 mean? How risky is it?

vii. The average return on the market (MKT) in Australia for the past 10 years has been 9.55%. The yield on Australian 10 year treasury bonds is currently 2.29%. Using these as proxies for the Return on Market (MKT) and Risk Free Rate (Rf), combine them with the A2M Beta (above) and calculate the return expected for A2M using the Capital Asset Pricing Model (CAPM).

viii. Using the CAPM data from the previous question create an XL scatter plot graph to plot the Security Market Line (SML) using the Risk Free Rate, Return on Market, and A2M as data points.

ix. Recreate the graph from (viii) above but this time also include the actual 2018 returns for A2M and the MKT as previously found (using the same beta measures).

x. Based on your CAPM findings construct a portfolio made up of 40% A2M and 60% MKT. Calculate the estimated return and β for this portfolio.

Rationale - This assessment task will assess the following learning outcome/s:

• be able to evaluate and explain the congruence of accounting, finance and treasury functions.
• be able to explain and critique the objectives of financial management in contemporary organisations.
• be able to critically evaluate mainstream financial theory and concepts.
• be able to discuss and evaluate ethical considerations in financial dealings.
• be able to demonstrate appropriate communication skills in the context of corporate finance.
• be able to demonstrate specific technical competencies and skills in utilising quantitative techniques in financial analysis.

The requirements of this assignment cover up to and including Topic 5 of the Online Learning materials. The assignment is designed to develop your financial analysis and problem solving skills and develop your written communication skills. The questions require you to apply the knowledge and tools covered in the subject topics in order to demonstrate your understanding of the subject content. This assignment has a heavy focus on fundamental financial mathematics which is a critical building block to develop your capacity to understand and resolve complex finance problems.

Attachment:- Assignment File - Questions.rar