Question 1
Answer the following questions in the spaces provided.
a) What is the formula for calculating Earnings Per Share?
b) Explain the difference between a residential home and an unlisted property fund.
c) Explain the difference between top-down and bottom-up research when it comes to choosing which
investments to select in a share fund.
Background to Questions 2 and 3
You are provided with the following 3 portfolios:
|
Asset Class
|
Investment Portfolio 1
|
Investment Portfolio 2
|
Investment Portfolio 3
|
|
Cash
|
70%
|
10%
|
5%
|
|
Fixed Interest
|
15%
|
25%
|
0%
|
|
Shares
|
15%
|
45%
|
75%
|
|
Property
|
0%
|
20%
|
20%
|
|
Total
|
100%
|
100%
|
100%
|
Question 2
When deciding on what is an appropriate asset allocation, investors often consider the following:
- ability to deal with short term volatility
- liquidity
- concern about effects of inflation
- potential tax effectiveness
- capital growth
- capital stability
Answer the following questions in the spaces provided.
a) Which of the six investor considerations listed above do you believe would be very important
for an investor who chooses to invest in Investment Portfolio 1?
b) Which of the six investor considerations listed above do you believe would be very important
for an investor who chooses to invest in Investment Portfolio 2?
c) Which of the six investor considerations listed above do you believe would be very important
for an investor who chooses to invest in Investment Portfolio 3?
Questions 3
Simon and Janine Mackintosh are married. They are both 65 and have just retired. They have $1,500,000 funds in a combination of superannuation and non-superannuation investments. They own their home which they intend to retain as their home during their retirement phase. They do not have any debt. They plan to spend $60,000 p.a. in retirement and do not have any further planned annual or lump sum expenses.
They have two daughters to whom they would like to eventually leave their home and remaining investment assets upon their deaths.
Simon and Janine are able to tolerate some investment fluctuations, although they would be very concerned if their investments fell by 40% in any year. Throughout most of their working life, they invested their funds in growth investment options comprising 15% defensive investments (cash and fixed interest) and 85% in growth investments (shares and property). However, they want to change their asset allocation now that they are both retired.
Simon and Janine are both healthy and they are each expected to live approximately 20 more years.
Required:
- Explain as though you are their financial adviser, the trade-off between income oriented investments and growth orientated investments.
- Assuming Simon and Janine have completed their risk profile and you have ascertained that they are assertive investors. Which of the three investment portfolios provided as the background to questions 2 and 3 would be most suitable? Explain your answer.
- Explain how the portfolio you selected would perform in the event of a bear market compared to a bull market.
