Sienna Diagnostics Stock Analysis

This assignment requires a thorough analysis of Sienna Diagnostics, an Australian company seeking listing on the Australian Securities Exchange (ASX). Students must evaluate the company's financial health, considering its current share price, decline in value, and potential for future growth. The analysis should also encompass the risks associated with investing in Sienna Diagnostics and explore the broader market context influencing its performance.

Running head: FUNDAMENTALS OF FINANCE
Fundamentals of finance
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

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Table of Contents
Question 1:.................................................................................................................................3
a.i) Depicting the savings of Jenifer after 5 years:.....................................................................3
a.ii) Depicting whether the deposits meet the 20% requirement:..............................................3
a.iii) Depicting how much she needs to borrow after 5 years to buy the house:.......................3
b.i) Calculating the fortnightly instalment amount:...................................................................4
b.ii) Depicting the overall repayment made by Jenifer over 20 years and the interest amount: 4
c.i) Depicting the Jenifer’s monthly repayment if he pays off the loan in 10 years:.................5
c.ii) Depicting the total repayment conducted in 10 years and the interest:..............................5
c.iii) Depicting whether she continues to use 40% of the average salary after promotion will
she be able to make the payment:..............................................................................................5
d.i) Depicting whether the new option could be able to meet the requirements of monthly loan
amount:.......................................................................................................................................6
d.ii) Depicting whether Jenifer should accept offer from her parapets:.....................................6
Question 2:.................................................................................................................................7
a.i) Calculating expected return of Portfolio AB:......................................................................7
a.ii) Calculating expected return of Portfolio AC:.....................................................................7
a.iii) Calculating expected return of Portfolio BC:....................................................................8
b) Explaining the meaning of correlation and the impact of risk on the portfolio:....................9
c) Explaining the meaning of diversification in finance and stating the impact of
diversification on the above portfolio:.....................................................................................10
Question 3:...............................................................................................................................11
i) Depicting what is prospectus and its components, when it is issued and home does it need
to be lodged in Australia:.........................................................................................................11

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ii) Depicting the three listing requirements of ASX and stating in which industry will Sienna
be listed:...................................................................................................................................12
iii) Depicting the issue price of share and how much could be raised from the IPO:..............12
iv) Depicting the process of acquiring shares of Sienna if IPO offer is missed:.....................12
v) Depicting the decision of buying shares in Sienna through the IPO:..................................13
Reference and Bibliography:....................................................................................................14

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Question 1:
a.i) Depicting the savings of Jenifer after 5 years:
Particulars Amount
Per Month Salary 6,666.67
Savings @40% per month 2,666.67
number of months in 5 years 60
Interest rate 0.25%
Total savings after 5 years 172,391.23
a.ii) Depicting whether the deposits meet the 20% requirement:
Particulars Amount
Loan amount 600,000
The loan requirements 20% 120,000.00
Total savings after 5 years 172,391.23
The overall total saving is higher than the loan requirement of 20%, which could
directly help Jennifer take the relevant loan for her home.
a.iii) Depicting how much she needs to borrow after 5 years to buy the house:
Particulars Amount
Loan amount 600,000
Total savings after 5 years 172,391.23

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Total loan amount needed from bank 427,608.77
b.i) Calculating the fortnightly instalment amount:
Particulars Value
Loan amount 480,000.00
Interest rate 4%
time 20
I 0.15%
N 520
Loan Payments 1,341.69
Particulars Value
Salary of Jennifer annually 150,000
40% of the average salary annually 60,000
fortnightly savings of Jennifer 2,307.69
Loan Payments 1,341.69
Excess amount left after loan repayment 966.00
b.ii) Depicting the overall repayment made by Jenifer over 20 years and the interest
amount:
Particulars Value
Total payments conducted by Jennifer 1341.69 * 520
Total payments conducted by Jennifer 697,681.11
Loan amount 480,000.00

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Interest paid by Jennifer 697,681.11 -480,000.00
Interest paid by Jennifer 217,681.11
c.i) Depicting the Jenifer’s monthly repayment if he pays off the loan in 10 years:
Particulars Value
Loan amount 480,000.00
Interest rate 4%
time 10
I 0.33%
N 120
Loan Payments per month 4,859.77
c.ii) Depicting the total repayment conducted in 10 years and the interest:
Particulars Value
Total loan amount paid by Jennifer 4,859.77 * 120
Total loan amount paid by Jennifer 583,172.00
Interest payment 583,172.00 - 480,000.00
Interest payment 103,172.00

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c.iii) Depicting whether she continues to use 40% of the average salary after promotion
will she be able to make the payment:
Particulars Value
Salary of Jennifer 150,000
40% of the average salary 60,000
fortnightly savings of Jennifer 5,000.00
Loan Payments per month 4,859.77
Excess amount left after loan repayment 5,000.00 - 4,859.77
Excess amount left after loan repayment 140.23
d.i) Depicting whether the new option could be able to meet the requirements of
monthly loan amount:
Particulars Value
Rent per month 2300
Extra expenses per month 500
Total income 1800
Total loan amount payment 4,859.77
Total balance difference (3,059.77)
No, Jennifer will not be able to fulfil the monthly requirements of the loan amount.
d.ii) Depicting whether Jenifer should accept offer from her parapets:
Thus, the calculation mainly depicts that Jennifer should not take the advice of her
parents.

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Question 2:
a.i) Calculating expected return of Portfolio AB:
Particulars Value
A Weight 40%
B Weight 60%
A returns 13%
B returns 17%
A risk 25%
B risk 30%
Correlation AB -0.2
Portfolio return (W1 * Returns A) + ( W2 * Returns B)
Portfolio return (40%* 13%) + ( 60% * 17%)
Portfolio return 15.4%
Variance (W12*Returns A2)+( W22*Returns B2)+(2*W1*W2*Returns
A*Returns B*correlation AB)
Variance (40%2*13%2)+(60%2*17%2)+(2*40%*60%*13%*17%*-0.2)
Variance 1.10%
Portfolio risk √Variance
Portfolio risk √1.10%
Portfolio risk 10.48%
a.ii) Calculating expected return of Portfolio AC:
Particulars Value

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A Weight 30%
C Weight 70%
A returns 13%
C returns 22%
A risk 25%
C risk 35%
Correlation AC 0.5
Portfolio return (W1 * Returns A) + ( W2 * Returns C)
Portfolio return (30%* 13%) + (70% * 22%)
Portfolio return 19.3%
Variance (W12*Returns A2)+( W22*Returns C2)+(2*W1*W2*Returns A*Returns
C*correlation AC)
Variance (30%2*13%2)+(70%2*22%2)+(2*30%*70%*13%*22%*0.5)
Variance 3.12%
Portfolio risk √Variance
Portfolio risk √3.12%
Portfolio risk 17.68%
a.iii) Calculating expected return of Portfolio BC:
Particulars Value
C Weight 50%
B Weight 50%
C returns 22%
B returns 17%

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C risk 35%
B risk 30%
Correlation BC 0.6
Portfolio return (W1 * Returns C) + ( W2 * Returns B)
Portfolio return (50%* 22%) + (50% * 17%)
Portfolio return 19.5%
Variance (W12*Returns C2)+( W22*Returns B2)+(2*W1*W2*Returns C*Returns
B*correlation BC)
Variance (50%2*22%2)+(50%2*17%2)+(2*50%*50%*22%*17*0.6)
Variance 3.05%
Portfolio risk √Variance
Portfolio risk √3.05%
Portfolio risk 17.48%
Portfolio Expected return Risk
AB 15.4% 10.48%
AC 19.3% 17.68%
BC 19.5% 17.48%
b) Explaining the meaning of correlation and the impact of risk on the portfolio:
Correlation Coefficient is mainly determined as a measure that helps in identifying the
degree in which two variables movement are interrelated. Moreover, the correlation
Coefficient allows investors to identify the overall link between two stocks, which could help
in formulating an adequate portfolio. The correlation Coefficient mainly has a relevant range

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in which the values of two variables need to be situated, which is from -1 to +1. Any value
less than -1 and greater than +1 is not considered to be correlation output. The overall
correlation Coefficient is mainly used as an adequate component in identifying the rest of the
portfolio. Standard deviation function mainly uses correlation between the two assets to
identify the overall risk affecting returns provided by the investment. Therefore, it could be
understood that with the use of correlation Coefficient investors are able to determine the
actual risk affecting the overall return from a Portfolio.
From the valuation of the above Table it could be understood that portfolio AB has
the least risk, while other portfolio BC and AC has a relatively high risk. This is mainly due
to the correlation coefficient affecting the overall risk capacity of the portfolio. The negative
correlation coefficient of sets the overall risk portrayed from stock A and B. however on both
portfolios BC and AC the correlation Coefficient is positive, where the stocks do not mitigate
their risks. Sadorsky (2014) mentioned that with the help of correlation coefficient .investors
are able to hedge the risk of their exposure and generate adequate returns from investment.
However, Dimpfl and Jank (2016) argued that portfolio creation based on correlation could
mitigate risk but reduce the return generating capacity of the portfolio. This is mainly
depicted in the above table where the revenue provided by portfolio AB is less that portfolio
BC and AC.
c) Explaining the meaning of diversification in finance and stating the impact of
diversification on the above portfolio:
Diversification could be identified as a relative technique, which allows investors to
adequately manage risk in the portfolio. This overall diversification method helps in reducing
the risk from investment and generate of adequate flow of returns. Zaimovic and Arnaut
Berilo (2015) stated that with the help of diversification method investor the able to include

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risky stocks in the portfolio and generate higher returns from the investment. The
diversification method is mainly a process where investors allocate the capital to reduce the
overall exposure of risk from a particular stock.
The diversification method used in developing portfolio AB, BC and AC has mainly
helped in reducing the overall risk from investment. This diversification method has been the
allowed the above portfolios to generate relevant returns from investment, while reducing the
risk from capital market. Arouri, Lahiani and Nguyen (2015) stated that investors with the
help of diversification are mainly able to acquire adequate portfolio which could provide
constant return from investment.
Question 3:
i) Depicting what is prospectus and its components, when it is issued and home does it
need to be lodged in Australia:
Prospectus is mainly identified as the legal document, which is required by
organisations who file with the security and exchange commission. In addition, prospectus is
also known as the legal document, which is presented by the organisation before the security
offering. The prospectus mainly allows the investor to understand the financial condition of
the company and whether they would be interested in investments. The prospectus is mainly
lodged with ASX and ASIC (Australian Securities and Investment Commission) (Asx.com.au
2017).

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ii) Depicting the three listing requirements of ASX and stating in which industry will
Sienna be listed:
There are only three listing requirements, which are demanded by ASX for new
listing companies.
 Number of shareholders needs to be a minimum of 300 non affiliated @A$2,000.
 The free float needs to be at 20% levels.
 The company size needs to be evaluated, where companies with A$4 million net
tangibles assets or A$15 million market capitalisation or A$1 million aggregate profit
from continuing operations for 3 years needs to be provided by the organisation.
Sienna would mainly be classified under Pharmaceuticals, Biotechnology & Life
Sciences, as it falls under the Health Care Sector (Asx.com.au 2017).
iii) Depicting the issue price of share and how much could be raised from the IPO:
The issue price of Sienna is mainly at $0.20 per share and around $4million or
$6million is estimated to be raised from the IPO. The company did not intend to pay divined
in the short term, as adequate profits needs to be conducted to support the dividend payment
scheme (Siennadiagnostics.com.au 2017).
iv) Depicting the process of acquiring shares of Sienna if IPO offer is missed:
After the completion of the IPO relevant stocks of Sienna could only be bought
through ASX, as investors would be conducting trades with the stock. The process for buying
the stock is relevantly simple, the investor needs to register with any broker and have a
account from which it could directly purchase the stock of Sienna and investment in it
adequately (m.asx.com.au 2017).