Diversification Analysis for Soul n D

[AIB subject title and subject AQF Level]
[Student name]
[Student number]
[Title of assignment]
Word count: [. insert word count here.]
1

Table of contents
1. Introduction...................................................................................................................................3
2. [Case Brief]................................................................................................................................3
3 [Diversification Analysis].......................................................................................................4
4 Changes in various external factors......................................................................................4
5. Scenario Analysis...........................................................................................................................5
6. Hedging the Risk............................................................................................................................6
7. Conclusion (or Conclusion and Recommendations).......................................................................7
Reference list.....................................................................................................................................7
2

1. Introduction
Soul n D is a manufacturer of stereos located in Australia, which deals with the two
countries relation which being United States as well as Australian Dollar. The company faces
some concerns and on account of the same following elements are analyized in context to
the diversification analysis of international project in terms with ROI and risk, it further,
defines the viability of an investment. On the more, it explains the variability in terms with
various scenario, which explains the concept in terms with the designing scenarios, along
with the using financial derivatives that could be used as a hedge. The same is explained in
terms with the recommendation and the conclusion is accordingly drafted as per the Sound.
2. [Case Brief]
The Soul n D case has following brief and analysis
- Increase of 10% in its production costs
- Decrease in its revenue of 13 %
- Annual return on investment (ROI) decrease to 5%
- 6% annual standard deviation of the ROI
Investment opportunity are explained as follows: -
OPTION A
interest rates at a high level (15%)
curbing inflation (i.e. 8% last year)
an average annual ROI of 8% = last 5 years
Relatively low risk (i.e. 5% standard deviation)
ROI estimated increase = 10 %
Correlation is 90 %
Option B
average annual ROI of 20%
Time Period = 3 years
Interest Rate = 1 %
Inflation = 0.50 %
relatively high risk = 12 % SD
Correlation = 20 %
ROI = 6 %
3