Masters of Professional Accounting

This document provides study material for Masters of Professional Accounting. It includes questions and answers related to various topics such as monthly deposits, cash flow, financial assets, pension amount, real rate of interest, negative gearing, risk in investment, dividend-imputation credit system, monthly returns, average returns, holding period, standard deviation, CAPM, and more.

Running head: MASTERS OF PROFESSIONAL ACCOUNTING
Masters of Professional Accounting
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1MASTERS OF PROFESSIONAL ACCOUNTING
Table of Contents
Question 1:.......................................................................................................................................3
a) Monthly deposit needed for holiday:...........................................................................................3
bi) Indicating whether investment will be purchased:.....................................................................3
bii) Cash flow at the end of year 2:..................................................................................................4
ci) Gaye’s financial assets value at the age of 60:...........................................................................4
cii) Monthly pension amount for Gaye after retirement:.................................................................5
Question 2:.......................................................................................................................................5
i) Explaining about Real Rate of Interest with adequate example:.................................................5
ii) Stating about negative gearing in context of Australian housing market:..................................6
Question 3:.......................................................................................................................................7
i) Defining risk in terms of investment:...........................................................................................7
ii) Discussing about the Australian dividend-imputation credit system for Australian and
international investors:.....................................................................................................................7
iii) Monthly returns of BHP in $ and %:.........................................................................................8
iv) Average monthly return of BHP:...............................................................................................8
v) Annual holding period for international shareholders:................................................................8
vi) Annual holding period for Australian shareholders:..................................................................9
vii) MKT monthly returns:..............................................................................................................9
viii) Average monthly return for MKT:...........................................................................................9
ix) Annual holding period return:....................................................................................................9
x) Graph for BHP and MKT:.........................................................................................................10
xi) Standard deviation for both BHP and MKT:...........................................................................10

2MASTERS OF PROFESSIONAL ACCOUNTING
xii) identifying the risk of BHP:....................................................................................................10
xiii) CAPM value for BHP:...........................................................................................................11
xiv) SML in scatter graph:.............................................................................................................11
xv) SML line with actual return of BHP:......................................................................................12
xvi) Return and beta for portfolio:.................................................................................................12
References:....................................................................................................................................13

3MASTERS OF PROFESSIONAL ACCOUNTING
Question 1:
a) Monthly deposit needed for holiday:
bi) Indicating whether investment will be purchased:
The company should accept the project, as IRR is higher than the discounting rate and
NPV is positive.

4MASTERS OF PROFESSIONAL ACCOUNTING
bii) Cash flow at the end of year 2:
The cash flow for year 2 is mainly at the levels of -$2,173.91.
ci) Gaye’s financial assets value at the age of 60:
The total financial asset value of Gaye at the end of retirement is at the levels of
$3,125,799.10.

5MASTERS OF PROFESSIONAL ACCOUNTING
cii) Monthly pension amount for Gaye after retirement:
The monthly income that will be generated by Gaye after the retirement is at the levels of
$13,00.89.
Question 2:
i) Explaining about Real Rate of Interest with adequate example:

6MASTERS OF PROFESSIONAL ACCOUNTING
There is a specific difference between real and nominal interest rate, which directly
affects the return that is generated from an investment. In addition, the specific calculation of
formula (1+interest rate) / (1+inflation rate) – 1 needs to be conducted by the investors to detect
the actual income that would be generated from an investment. The above calculation indicates
that the actual return from an investment is at the level of $399.60, where the interest rate is
0.50%. The reduction in the value of actual returns is due to the inflation, which erodes the
benefits that was provided from the investment. Real interest rate is actually lower that the
interest rate, as purchasing power of money reduces with the impact on inflation (Taylor &
Wieland, 2016).
ii) Stating about negative gearing in context of Australian housing market:
Negative gearing is a financial investment option, which is presented to the wealth, as it
needs adequate investments in an actual property, which will only incur loss. The wealthy people
with the help of negative gearing are able to get tax exemptions on the losses, which is being
incurred as the expenses of holding the property. However, the rising prices of houses in
Australia will allow the wealthy to get higher returns from investment. Nevertheless, the
negative gearing measure is not ethical for the housing market, as it will create a bubble and lead
to financial crisis similar to 2008. Thus, it could be understood that negative gearing is allowing
the wealthy people extra benefits, which is not provided to poor citizens (Hulse & Burke, 2016).

7MASTERS OF PROFESSIONAL ACCOUNTING
Question 3:
i) Defining risk in terms of investment:
Risk is considered to be one the major factors, which is seen by investors while making
the investment decisions. The risk attributes can be seen as bad to the conservative investors,
while the growth investors will believe it to be an opportunity. In the perspective of investment,
risk is considered parallel of the returns from an investment. The high risk will generate higher
returns in accordance with the CAPM calculation. Beta is used for detecting the risk attributes of
an investment, which states the volatility the stock can have in comparison to the capital market.
Thus, it can be understood that investors for increasing the level of return from an investment
can use the combination of stock in a portfolio to diversify the risk attributes of their exposure in
the stock market (Birtch et al., 2017).
ii) Discussing about the Australian dividend-imputation credit system for Australian and
international investors:
The dividend imputation credit system is generally for investors in Australia, where they
are able to get relevant tax credits on the dividends that is been provided by the company. The
shareholders of the organization are provided dividend imputations from the tax that is given by
the company to the regulators. This mainly reduces the possibility of double taxation on the same
income, which was taxed in Australia. This dividend-imputation credit system allows both the
international and Australian investors to benefit from the dividends that are provided by
companies, which in turn increases the actual returns from investment (McClure et al., 2018).

8MASTERS OF PROFESSIONAL ACCOUNTING
iii) Monthly returns of BHP in $ and %:
iv) Average monthly return of BHP:
v) Annual holding period for international shareholders:
Particulars Value
Annual holding period $ (34.2-29.6)
Annual holding period $ $4.60
Annual holding period % (34.2-29.6)/29.6
Annual holding period % 15.54%

9MASTERS OF PROFESSIONAL ACCOUNTING
vi) Annual holding period for Australian shareholders:
vii) MKT monthly returns:
viii) Average monthly return for MKT:
ix) Annual holding period return:

10MASTERS OF PROFESSIONAL ACCOUNTING
x) Graph for BHP and MKT:
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
BHP Return% ALL ORDS Return%
xi) Standard deviation for both BHP and MKT:
xii) identifying the risk of BHP:
The risk attributes of BHP are higher, as the beta values is at the level of 1.12, which is
higher than the market risk. Hence, the stock has higher risk attributes for an investor, which can
negatively affect the investment portfolio.

11MASTERS OF PROFESSIONAL ACCOUNTING
xiii) CAPM value for BHP:
xiv) SML in scatter graph:
0 0.2 0.4 0.6 0.8 1 1.2
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
Security Market Line
Rf BHP Rm SML
Axis Title

12MASTERS OF PROFESSIONAL ACCOUNTING
xv) SML line with actual return of BHP:
0 0.2 0.4 0.6 0.8 1 1.2
-7.00%
-6.00%
-5.00%
-4.00%
-3.00%
-2.00%
-1.00%
0.00%
1.00%
2.00%
3.00%
Security Market Line
Rf BHP Rm SML
Axis Title
xvi) Return and beta for portfolio:

13MASTERS OF PROFESSIONAL ACCOUNTING
References:
Birtch, T. A., Au, K. Y. F., Chiang, F. F., & Hofman, P. S. (2017). How perceived risk and
return interacts with familism to influence individuals’ investment strategies: The case of
capital seeking and capital providing behavior in new venture financing. Asia Pacific
Journal of Management, 1-30.
Hulse, K., & Burke, T. (2016). Private rental housing in Australia: political inertia and market
change. Housing in 21st-century Australia: People, practices and policies, 139-152.
McClure, R., Lanis, R., Wells, P., & Govendir, B. (2018). The impact of dividend imputation on
corporate tax avoidance: the case of shareholder value. Journal of Corporate
Finance, 48, 492-514.
Taylor, J. B., & Wieland, V. (2016). Finding the equilibrium real interest rate in a fog of policy
deviations. Business Economics, 51(3), 147-154.