Finance Report: Accounting and Finance Module, Semester 1

This finance report comprehensively addresses various aspects of accounting and finance. It begins with an analysis of future value calculations, followed by a detailed examination of net present value (NPV) under different discount rates. The report then delves into personal financial planning, including retirement savings and the calculation of future asset values. Furthermore, it explores real and nominal interest rates, notional interest, and their implications. The report also covers topics like demand-pull inflation, the dividend imputation system, and holding period returns for stocks. The report also includes the Capital Asset Pricing Model (CAPM) and portfolio beta calculations. It concludes with an overview of portfolio weighting and return analysis.

Running head: ACCOUNTING AND FINANCE
-
Accounting and Finance
Name of the Student:
Name of the University:
Author’s Note:

1ACCOUNTING AND FINANCE
Table of Contents
Answer to question 1:......................................................................................................................3
Part (a):........................................................................................................................................3
Part (b):........................................................................................................................................3
Sub part (i):..............................................................................................................................3
Sub part (ii):.............................................................................................................................4
Part (c):........................................................................................................................................5
Sub part (i):..............................................................................................................................5
Sub part (ii):.............................................................................................................................6
Answer to question 2:......................................................................................................................6
Part (a):........................................................................................................................................6
Sub part (i):..............................................................................................................................6
Sub part (ii):.............................................................................................................................7
Sub part (iii):............................................................................................................................7
Sub part (iv):............................................................................................................................7
Part (b):........................................................................................................................................7
Answer to question 3:......................................................................................................................7
Part (a):........................................................................................................................................7
Sub part (i):..............................................................................................................................7

2ACCOUNTING AND FINANCE
Sub part (ii):.............................................................................................................................8
Part (b):........................................................................................................................................8
Part (c):........................................................................................................................................9
Sub part (i) & (ii):....................................................................................................................9
Sub part (iii):............................................................................................................................9
Part (d):......................................................................................................................................10
Sub part (i) & (ii):..................................................................................................................10
Sub part (iii):..........................................................................................................................10
Sub part (iv):..........................................................................................................................11
Sub part (v):...........................................................................................................................11
Sub part (vi):..........................................................................................................................11
Sub part (vii):.........................................................................................................................11
Sub part (viii):........................................................................................................................12
Sub part (ix):..........................................................................................................................13
Sub part (x):...........................................................................................................................13
References and bibliography:........................................................................................................14

3ACCOUNTING AND FINANCE
Answer to question 1:
Part (a):
Number of years till the expected date of admission (n) = 5
Annual interest rate applicable (i) = 4% (Interest is compounded monthly)
Formula for Future Value of annuity due (FV) = PMT ×
( (1+ 4 %
12 )5× 12
−1
4 %
12 )=$ 60000
Where Future value will be 60000, Interest Rate will be 4% and the time period will be around 5
years of time.
Annual deposit to be made to build the fund (PMT) =
$ 60,000
( (1+ 4 %
12 )5× 12
−1
4 %
12 )=$ 904.99
Part (b):
Sub part (i):
Formula NPV = ⨊(P/ (1+i)t ) – C, where P = Net Period Cash Flow, i = Discount Rate (or rate
of return), t = Number of time periods and C = Initial Investment.
End of year Cash inflows ($mil) Present Value Factor
@10%
PV of cash inflows
($mil)

4ACCOUNTING AND FINANCE
1 1.8 1
( 1+ 10 % )1 1.64
2 3.0 1
( 1+ 10 % )2 2.48
3 6.5 1
( 1+ 10 % ) 3 4.88
4 8.4 1
( 1+ 10 % )4 5.74
5 12.3 1
( 1+ 10 % ) 5 7.64
Total of present value of cash inflows. 32
Total Investment made at the beginning. 20
Net present value (NPV) of the investment = (22.38−20) 2.38
It can be observed that, the expected rate of in the given case study is 10%. Therefore, the
project appraisal can be conducted using the net present value techniques by discounting the cash
inflows and outflows at a discount rate of 10%. The computed net present value for the
investment considering a 10% discounting rate is positive; hence, the investment option can be
accepted.
Sub part (ii):
End of year Cash inflow ($mil) Present Value Factor
@15%
PV of cash inflow
($mil)
1 1.8 1
( 1+ 15 % ) 1 1.57

5ACCOUNTING AND FINANCE
2 3.0 1
( 1+ 15 % )2 2.27
3 6.5 1
( 1+ 15 % ) 3 4.27
4 8.4 1
( 1+ 15 % )4 4.80
5 12.3 1
( 1+ 15 % ) 5 6.12
Present value of expected cash inflows over the years 19.03
Investment made at the beginning 20
Net present value (NPV) of the investment = (19.03−20) (0.97)
Formula NPV = ⨊(P/ (1+i)t ) – C, where P = Net Period Cash Flow, i = Discount Rate (or rate
of return), t = Number of time periods and C = Initial Investment.
In this part, a 15% discount rate has been taken for computation of the net present value
and the resultant net present value of the investment is negative, hence, if the discount rate is
15% the investment option should not be selected.
Part (c):
Sub part (i):
Current age in years = 34 Years
Expected retirement age = 67 Years

6ACCOUNTING AND FINANCE
Number of years till the age of retirement from now = 67-34 = 33 Years
Current balance in investment in share portfolio = $47,000
Annual rate of return on investment in share portfolio = 7%
Future value of total share portfolio at the age of retirement = 47000 × ( 1+7 % ) 33 = $438,291
Current balance in investment in superannuation fund = $78,000
Annual rate of return on investment in superannuation fund = 8%
Future value of the beginning balance in superannuation account at the time of retirement
= 78000 × ( 1+8 % ) 33 = $988,732
Annual contribution to the superannuation account = $1,000
Total future value of the annuity payments made to the superannuation fund
= 1000 × ( ( 1+8 % ) 33−1
8 % )=$145,951
The formula applied for Future Value will be FV: Co*(1+r)^n
Total Future value of the investment in Superannuation fund = $988,732+$145,951 = $1,134,682
Value of financial assets at the age of Retirement = $438,291+$1,134,682 = $1,572,973
Sub part (ii):
Total number of years till the age of 85 from 67 years of age = 85-67 = 18 Years
Rate of return = 5%

7ACCOUNTING AND FINANCE
Present value of $120,000 in 18 Years which needs to be kept aside at the end of the age of 85
years = 120000 × 1
( 1+ 5 %
12 )
18× 12 =48880
Present value of the pension utilized for monthly pension withdrawals = $1,572,973-$488,880
= $1,524,094
PMT= [P x R x (1+R)^N]/[(1+R)^N-1],
Amount of monthly pension that can be withdrawn (PMT) =
1524094
1− (1+ 5 %
12 )−18× 12
5 %
12
=$ 10,715
Answer to question 2:
Part (a):
Sub part (i):
The interest rate quoted by the bank is a nominal interest rate and if the inflation is
adjusted with it then the real interest rate is found.
Sub part (ii):
Notional interest is that rate of interest which is deductible from the income as per section
240 of the Income Tax Assessment Act of Australia. Recently prevailing benchmark of notional
interest rate is 5.37% (Ato.gov.au, 2019).

8ACCOUNTING AND FINANCE
Sub part (iii):
IF there is an inflation rate of 1.6%, then the real interest rate would be 1.6%+4% equals
to 5.6%. on the other hand the declared notional rate is 5.37%
Sub part (iv):
If the assumptions are same in computing he notional interest rate and real interest and a
same inflation rate is also considered, then these two could be very close to each other.
Part (b):
Decrease in cash makes and easy availability of cash hence, the spending power of the
consumers increases as a result there might be a demand-pull inflation in the economy (Shah,
2015). In such a situation the consumers get benefitted as they can borrow funds at a very lower
interest rate.
Answer to question 3:
Part (a):
Sub part (i):
Bank guaranteed interest rate on the investment = 1%
Annual Inflation rate to be considered = 2.5%
Real Interest Rate applicable for the investment = 1%+2.5% = 3.5%
Tax rate = 32.5%
Medicare levy on Marginal tax = 2%

9ACCOUNTING AND FINANCE
Effective tax rate to be paid = 32.5 %+( 32.5%*2%) = 32.5%+0.65 = 33.15%
Net Return on Investment after taxes = 3.5% * (1-33.15%) = 2.34%
The net income arising from the investment is more than the nominal interest rate, hence,
it can be concluded that the investment option is accumulating or appreciating the dollar value of
the investment (Shah, 2015).
Sub part (ii):
Risk and return are always there in every investment option. Higher degree of risk
assumption denotes higher amount of return. Hence, as much as the risk is assumed a higher
return can be expected from the investment (Jordan, Miller, & Dolvin, 2015). Bank guaranteed
interest rate can be considered as a risk free rate as there is no such higher level of risk exposure
of the investor.
Part (b):
Dividend imputation system is the system of transferring the tax benefit paid on the profit
to the shareholders with the dividend paid. There are two concept one is franked dividend which
imputes the tax and the other is the un-franked dividend which does not impute the tax credit
with the dividend paid (Ato.gov.au, 2019).
Part (c):
Sub part (i) & (ii):
Date Opening
Price
Closing
Price
Monthly
Holding
Period
Return ($)
Monthly
Holding
Period
Return(%)
17-Jul 3.79 4.14 0.35 9.23%

10ACCOUNTING AND FINANCE
17-Aug 4.15 5.04 0.89 21.45%
17-Sep 5.1 5.86 0.76 14.90%
17-Oct 5.92 7.62 1.7 28.72%
17-Nov 7.34 7.59 0.25 3.41%
17-Dec 7.6 7.37 -0.23 -3.03%
18-Jan 7.4 8.29 0.89 12.03%
18-Feb 8.32 12.23 3.91 47.00%
18-Mar 12.21 11.46 -0.75 -6.14%
18-Apr 10.96 11.31 0.35 3.19%
18-May 11.36 9.93 -1.43 -12.59%
18-Jun 9.7 10.52 0.82 8.45%
Average Monthly Holding Period Return of A2M 10.55%
Sub part (iii):
Opening price of the stock, July 2017 = 3.79
Closing price of the stock, June 2018 = 10.52
The holding period return formula is: HPR = ((Income + (end of period value - original
value)) / original value) * 100.Nov 27, 2017
Annual holding period Return for the A2M Stock ($) = 10.52 – 3.79 = 6.37
Annual holding period return for the A2M Stock (%) = 6.37/3.79 = 177.57%
Part (d):
Sub part (i) & (ii):
Date Opening
Price
Closing
Price
Monthly
Holding
Period
Return ($)
Monthly
Holding
Period
Return (%)
17-Jul 5,764.00 5,773.90 9.9 0.17%
17-Aug 5,773.90 5,776.30 2.4 0.04%
17-Sep 5,776.30 5,744.90 -31.4 -0.54%

11ACCOUNTING AND FINANCE
17-Oct 5,744.90 5,976.40 231.5 4.03%
17-Nov 5,976.40 6,057.20 80.8 1.35%
17-Dec 6,057.20 6,167.30 110.1 1.82%
18-Jan 6,167.30 6,146.50 -20.8 -0.34%
18-Feb 6,146.50 6,117.30 -29.2 -0.48%
18-Mar 6,117.30 5,868.90 -248.4 -4.06%
18-Apr 5,868.90 6,071.60 202.7 3.45%
18-May 6,071.60 6,123.50 51.9 0.85%
18-Jun 6,123.50 6,289.70 166.2 2.71%
Average Monthly Holding Period Return of Market
Shares 0.75%
Sub part (iii):
Opening price of the market shares, July 2017 = 5,764.00
Closing price of the market shares, June 2018 = 6,289.70
Annual holding period Return of the market shares ($) = 6289.70-5764.00 = 525.70
Annual holding period return of the market shares (%) = 525.70/5764.00 = 9.12%