Detailed Accounting and Finance Report: University Name

This comprehensive finance and accounting report delves into various aspects of financial analysis and investment strategies. It begins by examining the future value of an annuity due and net present value calculations, assessing the viability of investment proposals under different interest rate scenarios. The report then explores personal finance, calculating the future value of share portfolios and superannuation accounts, providing insights into retirement planning. It further analyzes nominal, real, and notional interest rates, discussing the impact of cash rates on the economy and inflation. The report also covers tax implications, including the net return on investment after tax and Medicare levy and dividend imputation systems. It presents a detailed analysis of the A2M stock, calculating monthly and annual holding period returns, and compares it with market returns, including risk coefficients and beta calculations. The report concludes with an application of the Capital Asset Pricing Model (CAPM) and portfolio beta calculations, offering a holistic view of financial analysis and investment management.

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:......................................................................................................................8
Part (a):........................................................................................................................................8
Sub part (i):..............................................................................................................................8

2ACCOUNTING AND FINANCE
Sub part (ii):.............................................................................................................................9
Part (b):........................................................................................................................................9
Part (c):........................................................................................................................................9
Sub part (i) & (ii):....................................................................................................................9
Sub part (iii):..........................................................................................................................10
Part (d):......................................................................................................................................10
Sub part (i) & (ii):..................................................................................................................10
Sub part (iii):..........................................................................................................................11
Sub part (iv):..........................................................................................................................11
Sub part (v):...........................................................................................................................11
Sub part (vi):..........................................................................................................................12
Sub part (vii):.........................................................................................................................12
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):
Total number of years to the date of admission (n) = 5
Annual rate of interest (i) = 4% (monthly compounded)
Future Value of an annuity due (FV) = PMT ×
( (1+ 4 %
12 )5× 12
−1
4 %
12 )=$ 60000
Amount to be deposited annually (PMT) =
$ 60,000
( (1+ 4 %
12 )5× 12
−1
4 %
12 )=$ 904.99
Part (b):
Sub part (i):
End of year Cash flow ($mil) Present Value Factor PV of cash flow ($mil)
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

4ACCOUNTING AND FINANCE
5 12.3 1
( 1+ 10 % ) 5 7.64
Present value of cash inflows 32
Investment 20
Net present value of the investment (NPV) = (22.38−20) 2.38
The expected rate of return is 10%, discounting the cash inflows of the investment the net
present value is coming to a positive value. Hence, the investment proposal can be accepted.
Sub part (ii):
End of year Cash flow ($mil) Present Value Factor PV of cash flow ($mil)
1 1.8 1
( 1+ 15 % ) 1 1.57
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 cash inflows 19.03
Investment 20
Net present value of the investment (NPV) = (19.03−20) (0.97)

5ACCOUNTING AND FINANCE
The expected rate of return is 15%. Therefore, expected cash inflows need to be
discounted by 15%. Applying the net present value technique considering a 15% discount rate,
the net present value of the investment is negative. Hence, the investment proposal should not be
accepted with an expected rate of return of 15%.
Part (c):
Sub part (i):
Current age of the individual = 34 Years
Age of retirement of the individual = 67 Years
Total number of years till the age of maturity from now = 67-34 = 33 Years
Current balance in share portfolio = $47,000
Annual rate of return on share portfolio = 7%
Future value share portfolio at the age of maturity = 47000 × ( 1+7 % ) 33 = $438,291
Current balance of superannuation account = $78,000
Annual rate of return on superannuation fund = 8%
Future value of the balance in superannuation account at the time of maturity
= 78000 × ( 1+8 % ) 33 = $988,732
Annual contribution to be made to the superannuation account = $1,000
Total future value of the annuity payment to the superannuation account

6ACCOUNTING AND FINANCE
= 1000 × ( ( 1+8 % ) 33−1
8 % )=$145,951
Future value of the 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%
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
= $1,524,094
Amount of monthly pension that can be withdrawn (PMT) =
1524094
1− (1+ 5 %
12 )−18× 12
5 %
12
=$ 10,715

7ACCOUNTING AND FINANCE
Answer to question 2:
Part (a):
Sub part (i):
In the given case study, the bank has quoted an interest for lending funds. The interest
rate quoted by the bank is a nominal interest rate. The real interest rate is the inflation-adjusted
rate of interest. For example, if the interest rate quoted by the bank is 4% and there is an inflation
rate of 2.5%, then the real interest rate is 4% and the inflation rate of 2.5% equals 6.5%.
Therefore, the interest rate quoted by the bank is a nominal interest rate and if the inflation rate is
added with the nominal interest rate, then the real interest rate can be found.
Sub part (ii):
Nominal rate of interest is the basic interest that is charged on the borrowed amount. It is
charged on the borrowed amount to compute the interest to be charged on the borrowed amount.
Real interest rate is the inflation adjusted nominal interest rate. Notional interest rate is that rate
of interest, which the Australian Taxation Act allows the taxpayers to claim as a deductible
expense for interest on borrowed capital. As per section 240 of the Income Tax Assessment Act
of Australia, an interest, which is computed, based on the arm’s length principle and considering
the inflation rate prevailing in the market by the taxation authority and notified as tax deductible.
Recently declared benchmark notional interest rate is 5.37% (Ato.gov.au, 2019).
Sub part (iii):
In Australia the prevailing inflation rate is 1.6%, if that rate is considered for computation
of the interest rate, then the real interest rate can be computed as 4%+1.6% equals 5.6%.

8ACCOUNTING AND FINANCE
Notional interest rate is computed by the taxation authority and declared by them. They also
consider the inflation rate as well as various other market factors.
Sub part (iv):
If the assumptions and period of computation of the real interest rate and notional interest
rate is same then the computed value of real interest rate and notional interest rate might become
equal (Ato.gov.au, 2019).
Part (b):
Cash rate is the rate charged by the reserve bank on the debt of the commercial banks. If
the cash rate is decreased by the Reserve bank then cost of fund to the commercial banks will be
lower and they will be having excess amount to lend. Therefore, they will be offering loans at a
lower rate of interest. If such situation arises then the fund flow in the economy will be higher,
hence there will be excess funds available to the individuals, which in turn will cause a higher
demand for the products and services. If demand increases, sellers will charge a higher price, as a
result a demand-pull inflation may arise in the market. By decreasing the cash rate, the interest
rate for borrowings will be lower, hence the individuals will be benefited from such activities
(Shah, 2015).
Answer to question 3:
Part (a):
Sub part (i):
Interest rate on bank guaranteed investment = 1%
Annual Inflation rate = 2.5%

9ACCOUNTING AND FINANCE
Real Interest Rate = 1%+2.5% = 3.5%
Tax rate = 32.5%
Medicare levy on Marginal tax = 2%
Effective tax rate including Medicare Levy = 32.5 %+( 32.5%*2%) = 32.5%+0.65 = 33.15%
Net Return on Investment after tax and Medicare levy = 3.5% * (1-33.15%) = 2.34%
It can be observed from the above calculation, that the net income after tax and Medicare
levy is more than the nominal interest rate, hence, it will be appreciating the real dollar value of
the investment (Shah, 2015).
Sub part (ii):
Every investment has two aspects, one is the return expectation and the other is the risk
assumption. If higher degree of risk is assumed then a higher return from the investment can be
expected. There are two types of risks, one is systematic risk and the other is unsystematic risks.
Systematic risks cannot be diversified through the construction of portfolio; on the other hand,
the unsystematic risk can be diversified through diversification of the portfolio. Beta is the
coefficient of risk, if beta is more than one then; the stock price is more volatile than the market.
It implies the movement on stock price is more than the movement in the market index. The bank
guaranteed interest rate is only 1% as it is assuming lower degree of risk. Hence, it can be
considered as a risk free investment (Jordan, Miller, & Dolvin, 2015).
Part (b):
Companies pay tax on their profit and at the time of payment of dividend to the owners of
the company, if such tax amount is transferred to the owners with the dividend, then such system

10ACCOUNTING AND FINANCE
of allocation of tax credit is known as dividend imputation system. In this system the tax paid on
profit is transferred to the shareholders as a tax credit, which will be reducing their net tax
liability (Ato.gov.au, 2019)..
Part (c):
Sub part (i) & (ii):
Date Opening
Price
Closing
Price
Monthly
Holding
Period
Return ($)
Monthly
Holding
Period
Return(%)
17-Jul 3.79 4.14 0.35 9.23%
17-Aug 4.15 5.04 0.89 21.45%
17-Sep 5.1 5.86 0.76 14.90%
17-Oct 5.92 7.62 1.7 28.72%
17-Nov 7.34 7.59 0.25 3.41%
17-Dec 7.6 7.37 -0.23 -3.03%
18-Jan 7.4 8.29 0.89 12.03%
18-Feb 8.32 12.23 3.91 47.00%
18-Mar 12.21 11.46 -0.75 -6.14%
18-Apr 10.96 11.31 0.35 3.19%
18-May 11.36 9.93 -1.43 -12.59%
18-Jun 9.7 10.52 0.82 8.45%
Average Monthly Holding Period Return of A2M 10.55%
Sub part (iii):
Opening price of the stock, July 2017 = 3.79
Closing price of the stock, June 2018 = 10.52
Annual holding period Return for the A2M Stock ($) = 10.52 – 3.79 = 6.37
Annual holding period return for the A2M Stock (%) = 6.37/3.79 = 177.57%

11ACCOUNTING AND FINANCE
Part (d):
Sub part (i) & (ii):
Date Opening
Price
Closing
Price
Monthly
Holding
Period
Return ($)
Monthly
Holding
Period
Return(%)
17-Jul 5,764.00 5,773.90 9.9 0.17%
17-Aug 5,773.90 5,776.30 2.4 0.04%
17-Sep 5,776.30 5,744.90 -31.4 -0.54%
17-Oct 5,744.90 5,976.40 231.5 4.03%
17-Nov 5,976.40 6,057.20 80.8 1.35%
17-Dec 6,057.20 6,167.30 110.1 1.82%
18-Jan 6,167.30 6,146.50 -20.8 -0.34%
18-Feb 6,146.50 6,117.30 -29.2 -0.48%
18-Mar 6,117.30 5,868.90 -248.4 -4.06%
18-Apr 5,868.90 6,071.60 202.7 3.45%
18-May 6,071.60 6,123.50 51.9 0.85%
18-Jun 6,123.50 6,289.70 166.2 2.71%
Average Monthly Holding Period Return of Market 0.75%
Sub part (iii):
Opening price of the market shares, July 2017 = 5,764.00
Closing price of the market shares, June 2018 = 6,289.70
Annual holding period Return of the market shares ($) = 6289.70-5764.00 = 525.70
Annual holding period return of the market shares (%) = 525.70/5764.00 = 9.12%