Financial Report: Assessing Investment Performance and Risk Management

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Assignment 1
1

Contents
(1).....................................................................................................................................................3
(a)................................................................................................................................................................3
(b)...............................................................................................................................................................4
i)..................................................................................................................................................................6
ii).................................................................................................................................................................6
(c)................................................................................................................................................................6
(i)..............................................................................................................................................................10
(ii).............................................................................................................................................................10
2)....................................................................................................................................................11
(i)..............................................................................................................................................................11
(ii).............................................................................................................................................................13
3.....................................................................................................................................................14
(i)..............................................................................................................................................................14
(ii).............................................................................................................................................................15
(iii)............................................................................................................................................................17
(iv)............................................................................................................................................................19
(v).............................................................................................................................................................20
(vi)............................................................................................................................................................21
2

(vii)...........................................................................................................................................................23
(viii)..........................................................................................................................................................24
(ix)............................................................................................................................................................25
(x).............................................................................................................................................................27
(xi)............................................................................................................................................................30
(xii)...........................................................................................................................................................30
(xiii)..........................................................................................................................................................30
(xiv)..........................................................................................................................................................31
(xv)...........................................................................................................................................................32
(xvi)..........................................................................................................................................................33
References:....................................................................................................................................34
3

(1)
(a)
20000
15
0.005
($1,287.29)
($1,287.29) this is the required amount.
4

(b)
Year Cash flow
1 -2500
2 0
3 5000
4 6800
5 7000
6 7000
7 9500
5

8 5500
9 2000
10 -4500
Required Rate of Return 15%
Net Present Value
$16,333.6
8
Investment Amount $16000
6

Net $333.68
i)
Yes, the investment can be purchasable.
ii)
The value of cash flow at the end of year 2 is “0”.
(c)
Yea
rs Portfolio Income
Superannuation Fund
Superannuation
as on date Additions Total Interest Balance
46 750,000 1 762 822
7

7,500 2,000 ,000 60,960 ,960
47 7,500 822,960
1
2,000
834
,960 66,797
901
,757
48 7,500 901,757
1
2,000
913
,757 73,101
986
,857
49 7,500 986,857
1
2,000
998
,857 79,909
1,078
,766
50 7,500 1,078,766
1
2,000
1,090
,766 87,261
1,178
,027
51 7,500 1,178,027
1
2,000
1,190
,027 95,202
1,285
,229
52
7,500
1,285,229 1
2,000
1,297
,229
1
03,778
1,401
,008
8

53 7,500 1,401,008
1
2,000
1,413
,008
1
13,041
1,526
,048
54 7,500 1,526,048
1
2,000
1,538
,048
1
23,044
1,661
,092
55 7,500 1,661,092
1
2,000
1,673
,092
1
33,847
1,806
,940
56 7,500 1,806,940
1
2,000
1,818
,940
1
45,515
1,964
,455
57 7,500 1,964,455
1
2,000
1,976
,455
1
58,116
2,134
,571
58
7,500
2,134,571 1
2,000
2,146
,571
1
71,726
2,318
,297
9

59 7,500 2,318,297
1
2,000
2,330
,297
1
86,424
2,516
,721
60 7,500 2,516,721
1
2,000
2,528
,721
2
02,298
2,731
,018
Tot
al 112,500
18
0,000
24,313
,746
(i) Consolidated Financial Holdings =
2,726,51
8
10

(ii) Amount needed at the end of 30 years =
41,19
9
The amount remaining for Investment =
-
41,199
Monthly pension received =
-
104.42
11

2)
(i)
The real rate of interest
This interest rate is used by the company in order to show the real cost of funds by adjusting to
remove the inflation effects. The real interest is received by the lender or an investor after
allowing the inflation changes. It is helpful in providing the information about the real cost or
actual cost of money borrowed and also yields an investment made. In other words, it can be
defined as the amount is to be expected received by the investor or depositor (in percentage) by
taking considering the inflation rate into the account. It can be calculated by using the following
formula (Pardoe, 2019).
The real rate of interest = Nominal rate of interest – Inflation rate (expected or actual)
The nominal rate of interest
It means the rate of interest that was used as the percentage without considering the effect of the
inflation rate. This is the actual rate that lender to use the money of borrowers in their business.
12