Financial Management Report: Analysis of Investment and Finance

This report provides a comprehensive analysis of financial management, covering investment strategies, portfolio management, and bond valuation. The report begins with a detailed examination of a share portfolio and superannuation account, calculating future values and returns. It then delves into retirement planning, calculating the monthly annuity required to sustain a lifestyle after retirement. The report further explores bond valuation, determining the price of a bond based on its coupon rate, market yield, and term. It also calculates the number of bonds to be issued to meet a specific capital requirement and discusses the relationship between coupon rates and market yield rates when bonds are issued at face value. The report utilizes financial calculations and provides references to relevant literature in the field of finance.

Running head: FINANCIAL MANAGEMENT
Financial Management
Name of the Student:
Name of the University:
Author’s Note:

1FINANCIAL MANAGEMENT
Table of Contents
Answer to question 4:......................................................................................................................2
Part a:...........................................................................................................................................2
Part b:...........................................................................................................................................3
Answer to question 5:......................................................................................................................4
Part a:...........................................................................................................................................4
Part b:...........................................................................................................................................4
Part c:...........................................................................................................................................4
References and bibliography:..........................................................................................................5

2FINANCIAL MANAGEMENT
Answer to question 4:
Current age 34 Years
Age of retirement 67 Years
Age after retirement to be self-financed 85 Years
Number of years till retirement (67-34) 33 Years
Number of years from retirement to the age of 85 years (85-67) 18 Years
Current balance in share portfolio investment $47,000
Rate of return on share portfolio investment 7%
Current balance in superannuation account $78,000
Monthly contribution to the superannuation account $1,000
Annual return from the superannuation account 8%
Number of times interest compounded in a year 12 times
Expected balance of investment at the age of 85 years $120,000
Part a:
Future value of share portfolio ¿ [ 47,000 ×(1+7 %)33 ] $438,291
Future value of the superannuation account
¿ [78,000 ×(1+ 8 %
12 )
33 ×12
]+
[ 1000
8 %
12
× {(1+ 8 %
12 )
33 ×12
−1 }] $3,017,141

3FINANCIAL MANAGEMENT
Total value of assets at the age of retirement ($438,291+$3,017,141) $3,455,432
Part b:
Rate of return on investment in pension scheme 5%
Number of times interest compounded in a year 12 times
Monthly annuity (A):
$ 120,000=
[ A
8 %
12
× {(1+ 8 %
12 )
18 ×12
−1 }]
$ 120,000= [ A
0.00667 × {(1+0.00667)18× 12−1 } ]
$ 120,000= [ A
0.00667 ×12.891 ]
A=
[ 120,000× 0.00667
12.891 ]
A = $23,949.22

4FINANCIAL MANAGEMENT
Answer to question 5:
Face value of each bond $1,000
Annual coupon rate 10%
Annual coupon payment ($1,000*10%) $100
Semiannual coupon rate ($100/2) $50
Term of the bond 8 Years
Market Yield rate 11.28%
Part a:
Price of each bond
¿
[1,000 × 1
(1+ 11.28 %
2 )
8 ×2
]+
[ 50
11.28 %
2
×
{1− 1
(1+ 11.28 %
2 )
8 × 2
}]
= $102.36
Part b:
Total capital requirement $2,800,000
Number of bonds to be issued ($2,800,000/$102.36) 27,355 bonds
Part c:
If the bond is issued at face value, and the market yield rate is 11.28%, then the coupon rate
should be the market yield rate. Hence, the coupon rate should also be 11.28%, if the bonds are
issued at face value (Chandra2017).

5FINANCIAL MANAGEMENT

6FINANCIAL MANAGEMENT
References and bibliography:
Chandra, P., 2017. Investment analysis and portfolio management. McGraw-Hill Education.
Kevin, S., 2015. Security analysis and portfolio management. PHI Learning Pvt. Ltd..