Financial Analysis and Investment Decisions in Accounting - Assignment

This assignment delves into various aspects of financial accounting and investment analysis. Question 1 explores concepts like calculating periodic payments, future investment values, and present values of annuities, with practical applications. Question 2 examines the objectives of financial management, contrasting profit maximization with shareholder wealth maximization, and discussing risk aversion in investment decisions. Question 3 involves analyzing stock performance, calculating holding period returns, and assessing portfolio risk and return, including beta analysis. The assignment provides a comprehensive overview of financial concepts and their application in real-world scenarios, emphasizing the importance of financial decision-making for maximizing shareholder value and managing investment risk.

Running head: MASTERS OF PROFESSIONAL ACCOUNTING
Masters of Professional Accounting
Name of the University
Name of the student
Authors note

1MASTERS OF PROFESSIONAL ACCOUNTING
Table of Contents
Answer to Question 1:................................................................................................................2
Requirement a:.......................................................................................................................2
Requirement b:.......................................................................................................................2
Requirement c:.......................................................................................................................3
Requirement d:.......................................................................................................................3
Requirement e:.......................................................................................................................3
Answer to Question 2:................................................................................................................4
Requirement 1:.......................................................................................................................4
Requirement 2:.......................................................................................................................5
Answer to Question 3:................................................................................................................6
Requirement i:........................................................................................................................6
Requirement ii:.......................................................................................................................7
Requirement iii:......................................................................................................................8
Requirement iv:......................................................................................................................8
Requirement v:.......................................................................................................................9
Requirement v:.......................................................................................................................9
Requirement vi:....................................................................................................................10
Requirement vii:...................................................................................................................10
Requirement viii:..................................................................................................................10
Reference:................................................................................................................................11

2MASTERS OF PROFESSIONAL ACCOUNTING
Answer to Question 1:
Requirement a:
Particulars Amount
Total Fund Desired A $10,000
Periodic Payments B $800
Interest Rate p.a. C 10%
Nos. of Payments p.a. D 2
Compound Interest E=C/D 5.00%
Total nos. of Payments F=NPER(E,B,0,(-A)) 9.95
Nos. of Full Payments G=F-0.95 9
Size of Concluding Payment H=Bx(F-G) $760
Requirement b:
Particulars Amount
Total Value of Lottery A $200,000
Initial Withdraw B $20,000
Investment Value C=A-B $180,000
Rate of Interest p.a. D 10%
Deferred Period (in years) E 4
Future Investment Value
after 4 years F=Cx(1+D)^E $263,538
Monthly Rate of Interest G=D/12 0.83%
Nos. of Monthly Payments H 180
Size of Equal Payments
I=(GxF)/[1-(1+G)^-
H] $2,832

3MASTERS OF PROFESSIONAL ACCOUNTING
Requirement c:
Particulars Amount
Annual Deposit A $4,000
Interest Rate p.a. B 5%
Nos. of Deposits C 11
Total Deposit Amount in
2017
D=(1+B)xA[{(1+B)^C
-1}/B] $59,669
Requirement d:
If the right is sold at $150000, then the singer would receive $6034 lesser than the
total present value of the annual payments. Hence, it is recommended that the singer should
retain the rights.
Particulars Amount
Annual Payment A $20,000
Interest Rate p.a. B 6%
Nos. of Deposits C 10
Present Value of the Total
Payments
D=(1+B)xA[{1-
(1+B)^-C}/B] $156,034
Current Sale Price of Future
Rights E $150,000
Loss on Sales F=E-D ($6,034)
Requirement e:
Period
Growth in Annual
Payments
Annual
Annuity
Discoun
t Rate
Discounted
Annuity
A B C D
E=C/
((1+D)^A)

4MASTERS OF PROFESSIONAL ACCOUNTING
1 0% $1,000 12% $893
2 10% $1,100 12% $877
3 10% $1,210 12% $861
4 10% $1,331 12% $846
5 10% $1,464 12% $831
6 10% $1,611 12% $816
7 10% $1,772 12% $801
8 10% $1,949 12% $787
9 10% $2,144 12% $773
10 10% $2,358 12% $759
Cost of Annuity $8,244
Answer to Question 2:
Requirement 1:
The concept of maximizing the wealth of shareholders is long-term approach while
profit maximization is short-term approach that does not intend to create value for business.
One of the universally accepted objectives of organization is to enhance the shareholders
wealth and this particular concept evolves after the evolution of profit maximization wealth.
Nonetheless, increase in profit of organization would directly affect the creation of
shareholders wealth. Organization should make capital investments at the rate more that
required rate of return or cost of capital that would drive the business value and growth.
Consequently, this would have positive influence on price of shares and an increased
payment of dividends to shareholders and thereby improving long-term pay offs. It is the
responsibility of management of organization to efficiently allocate resources that would lead
to optimum capital distribution. Mitigating the risks associated with such investment should
be the responsibility of investing organization (Hill et al., 2013). From the discussion, it can
be concluded that profit maximization is necessary but not sufficient for maximizing the
value and thereby wealth of shareholders.

5MASTERS OF PROFESSIONAL ACCOUNTING
Requirement 2:
Investors choosing the investment with lower level of associated risks when faced
with two investment decisions are said to be risk averse. Investment portfolio of such
investors comprise of assets generating fixed income and zero level of risks. Fixed deposits,
certificate of deposits, fixed deposits are certain types of assets carrying zero risks. However,
it can be said that such investors faces issues in selecting right vehicle for investment and
they often miss higher return generated from capital market investments. Corporate managers
should not investments only in risk free asset, as they does not have advantage of gaining
higher rate on their investments. Creating relationship between fluctuation and level of
profitability is certainly difficult for such investors. Investing in assets of capital market
would generate long-term benefits to investors (Lasher, 2013). However, there always exists
trade-off between risk and return. Investors seeking higher return should make investment in
assets carrying certain level of risks. Investments with high level of return carry some higher
level of risks and vice versa. Main apprehension of fall in value of assets and ultimately
return generated is fall in market value of stocks. However, making investments in capital
market assets would provide investors with tax benefits. Therefore, it is required by corporate
managers to have an optimum allocation between risk free and risky assets. It becomes
essential to incorporate certain risks for getting desirable return from risky assets (Brigham &
Daves, 2014).
Answer to Question 3:
Requirement i:
CBA Rio Tinto All Ordinary Index
Date Stock Price
Holding
Period Stock Price
Holding
Period Stock Price
Holding
Period

6MASTERS OF PROFESSIONAL ACCOUNTING
Return Return Return
1/31/2016 59.99 40.28 4947.90
2/29/2016 66.61 11.04% 42.69 5.98% 5151.80 4.12%
3/31/2016 65.70 -1.37% 51.55 20.75% 5316.00 3.19%
4/30/2016 68.84 4.79% 44.69 -13.31% 5447.80 2.48%
5/31/2016 66.12 -3.95% 45.50 1.81% 5310.40 -2.52%
6/30/2016 68.77 4.01% 49.56 8.92% 5644.00 6.28%
7/31/2016 63.85 -7.16% 47.60 -3.95% 5529.40 -2.03%
8/31/2016 67.17 5.21% 51.61 8.42% 5525.20 -0.08%
9/30/2016 68.09 1.37% 54.18 4.98% 5402.40 -2.22%
10/31/2016 72.97 7.17% 57.75 6.59% 5502.40 1.85%
11/30/2016 76.46 4.78% 59.90 3.72% 5719.10 3.94%
12/31/2016 75.77 -0.91% 66.68 11.32% 5675.00 -0.77%
11.04%
-1.37%
4.79%
-3.95%
4.01%
-7.16%
5.21%
1.37%
7.17% 4.78%
-0.91%
5.98%
20.75%
-13.31%
1.81%
8.92%
-3.95%
8.42%
4.98% 6.59%
3.72%
11.32%
4.12% 3.19% 2.48%
-2.52%
6.28%
-2.03% -0.08% -2.22%
1.85% 3.94%
-0.77%
Holding Period Returns
CBA Rio Tinto All Ordinary Index
Requirement ii:
CBA Rio Tinto All Ordinary Index
Date Stock Price
Holding
Period
Return Stock Price
Holding
Period
Return Stock Price
Holding
Period
Return
1/31/2016 59.99 40.28 4947.90
2/29/2016 66.61 11.04% 42.69 5.98% 5151.80 4.12%
3/31/2016 65.70 -1.37% 51.55 20.75% 5316.00 3.19%
4/30/2016 68.84 4.79% 44.69 -13.31% 5447.80 2.48%
5/31/2016 66.12 -3.95% 45.50 1.81% 5310.40 -2.52%
6/30/2016 68.77 4.01% 49.56 8.92% 5644.00 6.28%

7MASTERS OF PROFESSIONAL ACCOUNTING
7/31/2016 63.85 -7.16% 47.60 -3.95% 5529.40 -2.03%
8/31/2016 67.17 5.21% 51.61 8.42% 5525.20 -0.08%
9/30/2016 68.09 1.37% 54.18 4.98% 5402.40 -2.22%
10/31/2016 72.97 7.17% 57.75 6.59% 5502.40 1.85%
11/30/2016 76.46 4.78% 59.90 3.72% 5719.10 3.94%
12/31/2016 75.77 -0.91% 66.68 11.32% 5675.00 -0.77%
Average Monthly
Holding Period
Return 2.27% 5.02% 1.29%

8MASTERS OF PROFESSIONAL ACCOUNTING
Requirement iii:
CBA Rio Tinto All Ordinary Index
Date Stock Price
Holding
Period
Return Stock Price
Holding
Period
Return Stock Price
Holding
Period
Return
1/31/2016 59.99 40.28 4947.90
2/29/2016 66.61 11.04% 42.69 5.98% 5151.80 4.12%
3/31/2016 65.70 -1.37% 51.55 20.75% 5316.00 3.19%
4/30/2016 68.84 4.79% 44.69 -13.31% 5447.80 2.48%
5/31/2016 66.12 -3.95% 45.50 1.81% 5310.40 -2.52%
6/30/2016 68.77 4.01% 49.56 8.92% 5644.00 6.28%
7/31/2016 63.85 -7.16% 47.60 -3.95% 5529.40 -2.03%
8/31/2016 67.17 5.21% 51.61 8.42% 5525.20 -0.08%
9/30/2016 68.09 1.37% 54.18 4.98% 5402.40 -2.22%
10/31/2016 72.97 7.17% 57.75 6.59% 5502.40 1.85%
11/30/2016 76.46 4.78% 59.90 3.72% 5719.10 3.94%
12/31/2016 75.77 -0.91% 66.68 11.32% 5675.00 -0.77%
Annual Holding
Period Return 1.96% 4.29% 1.15%
Requirement iv:
CBA Rio Tinto All Ordinary Index
Date Stock Price
Holding
Period
Return Stock Price
Holding
Period
Return Stock Price
Holding
Period
Return
1/31/2016 59.99 40.28 4947.90
2/29/2016 66.61 11.04% 42.69 5.98% 5151.80 4.12%
3/31/2016 65.70 -1.37% 51.55 20.75% 5316.00 3.19%
4/30/2016 68.84 4.79% 44.69 -13.31% 5447.80 2.48%
5/31/2016 66.12 -3.95% 45.50 1.81% 5310.40 -2.52%
6/30/2016 68.77 4.01% 49.56 8.92% 5644.00 6.28%
7/31/2016 63.85 -7.16% 47.60 -3.95% 5529.40 -2.03%
8/31/2016 67.17 5.21% 51.61 8.42% 5525.20 -0.08%
9/30/2016 68.09 1.37% 54.18 4.98% 5402.40 -2.22%
10/31/2016 72.97 7.17% 57.75 6.59% 5502.40 1.85%
11/30/2016 76.46 4.78% 59.90 3.72% 5719.10 3.94%
12/31/2016 75.77 -0.91% 66.68 11.32% 5675.00 -0.77%
Standard Deviation 5.26% 8.64% 2.99%

9MASTERS OF PROFESSIONAL ACCOUNTING
Requirement v:
0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
0%
1%
2%
3%
4%
5%
Series2 CBA Rio Tinto
Requirement v:
CBA Rio Tinto
Date Stock Price
Holding
Period
Return Stock Price
Holding
Period
Return
Long Term Market
Return 7% 7%
Risk Free Rate 3.25% 3.25%
Beta 1.1 0.95
Expected Returns 7.38% 6.81%

10MASTERS OF PROFESSIONAL ACCOUNTING
Requirement vi:
0 0.2 0.4 0.6 0.8 1 1.2
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
Security Market Line
Series2
Linear (Series2)
CBA
Linear (CBA)
Rio Tinto
Linear (Rio Tinto)
Beta
Return Rate
Requirement vii:
CBA Rio Tinto
Date Stock Price
Holding
Period
Return Stock Price
Holding
Period
Return
Beta 1.1 0.95
Expected Returns 7.38% 6.81%
Weightage 60% 40%
Portfolio Return 7.15%
Portfolio Beta 1.04
Requirement viii:
The return rates of Rio Tinto would be lower than the portfolio, whereas, the risk
level of CBA is higher than the portfolio. Therefore, the investors should select the portfolio
for earning optimum returns at comparatively lower risk level.

11MASTERS OF PROFESSIONAL ACCOUNTING
Reference:
Bae, G. I., Kim, W. C., & Mulvey, J. M. (2014). Dynamic asset allocation for varied financial
markets under regime switching framework. European Journal of Operational
Research, 234(2), 450-458.
Bodie, Z., Kane, A., & Marcus, A. J. (2014). Investments, 10e. McGraw-Hill Education
Brigham, E. F., & Daves, P. R. (2014). Intermediate Financial Management. Cengage
Learning.
DeFusco, R. A., McLeavey, D. W., Anson, M. J., Pinto, J. E., & Runkle, D. E.
(2015). Quantitative investment analysis. John Wiley & Sons
Deguest, R., Martellini, L., & Meucci, A. (2013). Risk parity and beyond-from asset
allocation to risk allocation decisions.
Harlow, W. V., & Brown, K. C. (2016). Market Risk, Mortality Risk, and Sustainable
Retirement Asset Allocation: A Downside Risk Perspective. Journal of Investment
Management, 14(2), 5-32.
Hill, M. D., Kelly, G. W., Lockhart, G. B., & Ness, R. A. (2013). Determinants and effects of
corporate lobbying. Financial Management, 42(4), 931-957.
Lasher, W. R. (2013). Practical financial management. Nelson Education.