QUESTION
MAF101 FUNDAMENTALS OF FINANCE
MAJOR ASSIGNMENT: ASSESSMENT: 20%
MAF101 – FUNDAMENTALS OF FINANCE. TRIMESTER 1, 2012
DUE DATE: TUESDAY
15
TH
MAY, 2012 BY 5.00 PM
1. This assignment is to be submitted in groups of TWO or THREE (no more
and no less). Group members may be from any finance class. Each student
must submit an Assignment Attachment Form (cover sheet) with their
assignment and place the completed assignment in the Lecturer’s locker
located on level 4, Building la. Submit ONE HARDCOPY ONLY PER GROUP.
Individual submission will be penalized 5 MARKS unless special
permission has been given by the unit coordinator
. (Special permission
will only be given under extenuating circumstances. Not being able to find a
group member is not an acceptable excuse. Speak to your lecturer if you are
not in a group well before the assignment is due.)
2. The assignment is to be typed. It must include a title page with your names
and students IDs, table of contents, the main body of the research, be
properly referenced (see file on Harvard Referencing Method from the
course notes section of the myMIBT student portal) and include a reference
list of any articles, electronic sources, etc. at the end of the report. The main
body of the research should simply be the answers to each of the six
questions asked as well as the completed table. Ensure that your
assignment is well presented. The marks allocated to each of the six
questions is shown in the assignment requirements (total of 35 marks) and
presentation will be worth 5 marks directly for the title page; table of
contents; reference list and proper referencing (in-text citations). Total
marks = 40 which will be scaled down to 20%. However, marks will be
DEDUCTED if the assignment is poorly presented. ALL workings for
Question 1 are to be included in an appendix at the end of your assignment
otherwise marks will be deducted.
3. When answering the questions it is essential that you respond with your
OWN words. DO NOT cut and paste the responses from the internet or from
other sources. Marks will be deducted if this is detected. Please note that
Wikipedia is NOT an acceptable academic source.
4. The aim of this assignment is to research managed funds offered by
Colonial First State in their Product Disclosure Statement (PDS) dated 12
March,2012 available from the MIBT portal moodle site (week 5 labelled
<COLONIAL FIRST STATE PDS>).
DO NOT SUBMIT THE PDS WITH YOUR ASSIGNMENT.
5. WORD COUNT: Minimum 2,200 words and maximum 2,500 words.
If the word count is not between the above limits then marks will be
deducted.
Show word count at the end of your assignment.
6. Please note assignment submission policy, page 3 of the Unit Outline and
read the attached instructions carefully.
th
1 of 3
MAF101 FUNDAMENTALS OF FINANCE
Assignment requirements:
Investing in managed funds has become a popular choice with individual investors.
Managed funds offer many advantages over other investments and are ideal for timepoor
investors.
With
thousands
of
managed
funds
on
offer
in
Australia
your
task
is
to
research
the
managed
funds
that
are
offered
by
Colonial
First
State
in
their
Product
Disclosure
Statement
available
from
the
link
on
the
MIBT
portal
moodle
site
in
week
five.
Your
task
is
to
answer
the
following
questions
by
referring
to
the
Colonial
First
State
PDS
listed
above
and
by
using
other
resources
(such
as
the
internet;
media
and
finance
textbooks):
1. By using the information in TABLE ONE (page 3) calculate the expected (average)
return and risk (standard deviation) for each of the five asset classes as well as the
three managed funds and include your answers in the table. Show ALL workings here in
an appendix at the end of your assignment. ( 8 MARKS)
2.
Explain what managed funds are. ( 4 MARKS )
3.
Discuss the meaning of diversification and how it impacts the risk and return. Use the
information and results in Table One to illustrate. ( 4 MARKS)
4.
Managed funds offer you considerable choice. Required:
(a)
What is an asset class? Describe the features and the important characteristics
of each of the asset classes in Table One. (ie shares; property; bonds and cash).
Use your results from Table One to illustrate.
(b)
Colonial First State offers four types of multi sector funds. Identify them, their
features and how they differ. Your answer should include the asset classes
each fund invests in and the distribution between asset classes.
(c)
Distinguish between a growth asset and a defensive asset. Provide two examples
of each. ( 6 + 6 + 2 = 14 MARKS )
5. Identify and discuss some of the risks that you may face by choosing to invest in
managed funds. ( 2 MARKS )
6. If you had $50,000 to invest in a managed fund which specific multi-sector managed
fund would you choose from those offered by Colonial First State? Justify your choice
which should include reference to the characteristics of financial assets, your groups
financial objectives and the information in Table One. ( 3 MARKS )
2 of 3
MAF101 FUNDAMENTALS OF FINANCE
TABLE ONE: HISTORICAL ASSET CLASS RETURNS
Source: IRESS, Colonial First State, RIMES
YEAR
TO
30TH
JUNE
AUST.
SHARES
GLOBAL
SHARES
PROPERTY
FIXED
INTEREST
(BONDS)
CASH
CONSERVATIVE
FUND
1997 26.84% 28.46% 28.53% 16.76% 6.77% 16.53% 19.79% 22.97%
1998 0.96% 41.58% 9.97% 10.88% 5.11% 10.40% 15.08% 17.74%
1999 14.14% 8.21% 4.31% 3.28% 5.04% 6.07% 7.18% 8.58%
2000 18.15% 23.69% 11.91% 6.17% 5.58% 9.80% 13.09% 16.09%
2001 9.11% -5.82% 13.91% 7.42% 6.08% 6.21% 4.44% 3.42%
2002 -4.54%
BALANCED
FUND
-23.26% 14.85% 6.21% 4.66% 1.54% -3.26% -7.13%
2003 -1.61% -18.28% 12.15% 9.78% 4.97% 3.70% -0.60% -4.06%
2004 21.73% 19.38% 17.24% 2.33% 5.30% 8.73% 11.96% 15.31%
2005 26.03% 0.57% 18.10% 7.79% 5.64% 9.57% 9.61% 10.93%
2006 24.02% 19.97% 18.05% 3.41% 5.76% 9.71% 12.99% 16.47%
2007 29.21% 8.23% 25.87% 3.99% 6.42% 10.14% 11.80% 14.50%
2008 -13.67% -21.03% -36.35% 4.42% 7.34% -1.86% -6.87% -11.52%
2009 -20.34% -16.31% -42.27% 10.82% 5.48% -1.09% -6.18% -11.48%
2010 13.10% 5.50% 20.40% 7.90% 3.90% 7.67% 7.97% 8.65%
2011 11.90% 3.00% 5.80% 5.50% 5.00% 6.05% 6.05% 6.49%
EXPECTED
RETURN
RISK
All final calculations should be correct to two decimal places (ie
two places after the dot point) expressed as a percentage.
DIVERSIFIED
FUND
3 of 3
SOLUTION
Q4
a) Asset Class: Asset class can be defined as investment options that are available that have characteristics that are similar in nature and show similar behavior when subjected to the conditions of the market including the regulations binding to the investments that are similar in nature.
Features and characteristics of shares
There are different types of shares, namely, equity shares, preference share and ordinary shares. Irrespective of what type of shares is there generally the shares show the interest and hold of an individual or a company over the company or organization of which it holds the share. The hold includes earnings and ownership over the company.
The shares are associated with the following characteristics:
- It provides the individual or any other entity holding the shares with the voting rights.
- Each person holding the shares has limited liability over the debt that has been raised by the company
- Shareholders enjoy only the residual claim over the returns or the earnings of the company
- The shares of a company are associated with uncertain returns. This is to say that the returns on shares are dependent on the earnings of the company which is varying.
Features of property
Property as an asset is very unique the returns of which are dependent not only on the demand but also on other factors such as interest rates, prevailing rent and the income level. Below are a few features of the property as asset:
- No maturity date: The property does not have maturity date, the returns are dependent on the time when the value of the property is estimated and thus the returns are calculated. (Inderset,2010)
- High cost: Property is associated with high cost of transaction and the cost associated with owning an asset.
- Variable in Nature; The returns and the value of a property is highly dependent upon its location, thus the value of a property varies from place to place and from region to region. It depends upon the growth in the region and demand in that region. Thus it does not have uniformity as it is there in other asset class such as shares which have constant value in the market.
- Tangible characteristic: The property is tangible in nature. It involves management of asset and its value is dependent upon the management of the asset.
Cash
Cash are the least risky of the assets and are associated with the following characteristics:
- Ready Assets: Cash is the ready asset. It can be used at any time and by anybody. It is the direct payment for acquiring any asset
- Interest rates: the interest is paid by the one who has to pay back the cash in the form of assets.
- Negotiable Instrument: Cash is the negotiable instrument; this is to say that the cash is the asset for the one who holds it. Thus the holder of cash cannot be identified with any instrument and the holder is the owner of this asset.
Bonds
Bonds are preferred by the investment analysis as securities associated with risk and returns which varies with different types of bonds. Below are the some general characteristics of bonds
- Maturity Dates: Bonds are associated with maturity dates which may range for different periods depending upon the interest of the investor.
- Payment of Interest: There is interest payments associated with the bonds which depend on the type of bond, whether it is fixed or variable rate bond.
- Investment: The investments are associated with bonds which may vary from the interest and type of bonds which may require certain minimum payment.
- Principal repayment: There is certain repayment for the bonds by the investor which is dependent on the term of bond and the repayment mode of the investor for the interest rates etc.
b) The four types of Multi Sector funds by Colonial First State are discussed below along with the characteristics of these funds:
Colonial First State Wholesale Conservative Fund These funds have been developed with an objective to regular income and also the stability by increasing the value of the investment.
The investment under this multi sector fund include 15% Australian share, 10% Global shares, 5% Property securities and 70% Fixed interest and cash. Since the major portion of investment is in cash it has the least risk and the diversification has made it possible to have marginal increase in the returns.
Colonial First State Wholesale Balanced Fund
The objective of this fund is to maintain a balance in the income and the capital growth. Thus in order to achieve this balance the investment in this multi sector fund is more diversified than conservative fund as the investment percentage in different asset class is 20% in Australian share, 15% in Global shares, 10% in Global resources shares and 5% in Property securities and 50% in Fixed interest and cash
Colonial First State Wholesale Diversified Fund
These funds have the objective of increasing the capital growth of the funds and at the associated with little income for the investments in the funds. The allocation of funds in different asset class are 30% Australian share, 20% Global shares, 10% Global resource shares, 5% Property securities, 5% Global infrastructure securities and 30% Fixed interest and cash. Thus it can be seen that the investment in cash comparatively less as compared to other multi sector funds.
Colonial First State Wholesale High Growth Fund
The core objective of this fund is to provide the growth in the investment and little consideration is there for the income generation. The diversification in these funds is 40% Australian share, 10% Australian small company shares, 30% Global shares and 20% Global resource and soft commodity shares. These funds are the most risky as it can be seen that the most investments are in Australian shares and no investment has been made in cash. (HeubScher,2009)
c) Growth Assets: These are the assets that result in return over a period of time which is greater than the inflation rate of the economy as a whole. The return on the investments can be in terms of the capital growth and the returns in the form of income. These assets have high returns and thus are associated with high risk on investments. The examples for growth assets are Shares and Property.
Defensive Assets: these assets are associated with low risk. Thus the risk associated with the loss of capital or the income is very less as compared to the other forms of assets. These assets also have returns that have high share from the income
Thus these assets are associated with low return but also are subjected to low volatility as compared to the risk in the markets. Cash and Fixed deposits are the best examples of the defensive assets.
Q6.
To make the investment of $ 50,000 the investment shall be made in diversified fund. This is because of two reasons. Firstly the share of investment in Australian shares is of good percentage and the investment in global shares is less compared to High Growth Fund. It can be seen from the table that the global shares have resulted in negative growth rate and are fairly unstable whereas the returns on the Australian shares have been fairly positive. Thus being associated with high risk global shares have resulted in negative growth whereas Australian shares have given positive returns. (Gibson,2008)
Secondly the investment in cash will result in income which can be reinvested in other multi sector funds or it can be used. Thus in other words this fund has the benefit of both growth and income with priority being given to growth which is very important as it increase the value of the fund and at the same time it provides with the option of income which provides more opportunities of investments in different funds.
References:
Tiaa Financial Services. (2010). Asset Classes.
Available:http://www.tiaa-cref.org/public/advice-planning/education/saving-for-retirement/basics/asset_classes/index.html. Last accessed 14th May 2012
Inderst G. (2010). Infrastructure as an Asset Class. Available: http://www.pensions-institute.org/workingpapers/wp1103.pdf. Last accessed 14th May 2012
Huebscher R. (2009). Volatility as an Asset Class. Available: http://www.advisorperspectives.com/newsletters09/pdfs/Volatility_as_an_Asset_Class.pdf. Last accessed 14th May 2012.
Gibson R. C.. (2008). The Rewards of Multiple-Asset-Class Investing.
Available:http://www.amcham-shanghai.org/amchamportal/InfoVault_Library/2008/Multiple_Asset_Class_Investing.pdf. Last accessed 14th May 2012
LB48
But you can order it from our service and receive complete high-quality custom paper. Our service offers Accounting essay sample that was written by professional writer. If you like one, you have an opportunity to buy a similar paper. Any of the academic papers will be written from scratch, according to all customers’ specifications, expectations and highest standards.”
