FNSASICT503A
Provide advice in
Managed Investments Assignment
ASSESSMENT EVENT/S Event 2 of 2
ASSESSMENT CONDITIONS/ INSTRUCTIONS TO STUDENTS
 Answers must be typed (not hand written).
 Assignments to be submitted electronically through SAKAI
All parts must be completed
DUE DATE – As detailed on Sakai site
PERFORMANCE MEASURMENT Results will be reported as:Competent or Not Yet Competent
Question
1
2
3
4
5
6
7
8
9
Weighting
30%
25%
5%
15%
5%
5%
5%
5%
5%
Competent / Not Yet Competent
Plagiarism Declaration
I have read the Student Service Guide under Student Responsibilities to “… not engage in
plagiarism, collusion or cheating in any assessment event or examination”.
Student Signature…………………………………………Date......................................................
25th October 2013
Meadowbank TAFE – NSI
Course: Advanced Diploma Financial Planning
Version 1
Page 1 of 11
Section 734
Share point
Question 1
James (43) is single and earns $90,000 per annum before tax. He owns his own
home and last year cleared all his debts after implementing a strict budget for the
last five years.
He has a good superannuation balance in an industry fund and is on track to have a
comfortable lifestyle in retirement. James will receive a work related bonus after tax
in the next few months of $30,000 after tax. He is keen to know the outcome of
borrowing $100,000 to purchase a fully franked Australian share portfolio of
$130,000 with a return of 5%.
There is $10,000 deposit earning 4.5% in an emergency fund that will not be
touched. His living expenses total $40,000 per month.
James has private health insurance and comprehensive life insurance within his
superannuation fund.
Using the current financial year personal tax rates www.ato.gov.au
a) Prepare an annual cash statement after tax and Medicare levy under his
current circumstances before receipt of the bonus and gearing strategy.
b) Prepare an annual cash statement after tax and Medicare levy after
implementation of the gearing strategy. Apply all tax adjustments applicable
to the investment in franked shares.
c) Explain why the after tax income has changed.
d) What warnings would you raise with James prior to implementation of the new
strategy?
Question 2
Explain the following terms:a)
b)
c)
d)
e)
Modern Portfolio Theory
Efficient Frontier
CAPM
Question 6
Explain the difference between coupon rate and yield.
25th October 2013
Meadowbank TAFE – NSI
Course: Advanced Diploma Financial Planning
Version 1
Page 2 of 11
Section 734
Share point
Question 3
There are two assets L and M. Their expected returns are 10% and 5% respectfully.
The risk of L is 5 % and the risk of M 10%. At the present time Harry is concerned
about reducing his risk. What will be the expected return and risk of a portfolio LM if
the assets are held in the following proportions?
A
B
C
L 50%
L 40%
L 50%
M 50%
M 60%
M 50%
Correlation Coefficient of 1.50
Correlation Coefficient of 0
Correlation Coefficient of -0.30
Question 4
Louise purchases 200 shares of AYZ Ltd at a price of $13 each. During the first year
of ownership, she receives $0.50 per share in cash dividends. At the end of the year
Jane sells her shares for $24 each. Find the following (dollar) returns for each
holding:a) Return from Dividends
b) Return from Capital Gains
c) Total Return
Question 5
Explain the difference between coupon rate and yield.
Question 6
Discuss the factors that need to be understood before investing in direct property?
Question 7
Discuss the importance of diversification and professional management in a
managed fund?
Question 8
Why do wrap accounts appeal to small investors?
Question 9
Identify three potential sources of return to managed fund investors and briefly
discuss how each affect the total return to investors.
25th October 2013
Meadowbank TAFE – NSI
Course: Advanced Diploma Financial Planning
Version 1
Page 3 of 11
Section 734
Share point
Correct answer = *
1)
Charles wants to save some money. He can afford to put $20,000 into a savings
program. How much money will she have at the end of five years, if she receives
4% compounded and paid annually?
a) $24, 333*
b) $26, 444
c) $23, 120
2)
$24, 968 Charles wants to save some money. He can afford to put $20,000 into a
savings program. How much money will she have at the end of five years, if she
receives 4% compounded and paid annually?
a)
b)
c)
d)
$26, 238
$24, 420*
$26, 110
$24, 320
3)
Emma wants to save some money. He can afford to put $20,000 into a savings
program. How much money will she have at the end of five years, if she receives
5% compounded and paid monthly?
a)
b)
c)
d)
$24, 268
$24, 419
$26, 510
$25, 670*
4)
What is the expected return and risk associated with share z given the following
details:Event
1
2
25th October 2013
Meadowbank TAFE – NSI
Probability
.40
.30
Course: Advanced Diploma Financial Planning
Version 1
Page 4 of 11
Actual Return
.12
.15
Section 734
Share point
3
a)
b)
c)
d)
.30
.20
14.6% and 2.36%
12.3% and 3.38%
15.3% and 3.32%*
14.8% and 3.16%
5) p361
An investor with a moderately conservative risk profile would have the following
allocation to asset classes:Answer
Cash%
a)
b)
c)
d)*
12-33
10-40
12-20
9-33
Australian
Shares%
20- 30
15- 35
16-30
7-17
International
Shares%
22- 32
25-30
20-35
4-16
Property%
0-15
0-20
0-15
0-16
6)p368
An investor with a growth risk profile would expect the following relationship between
risk and return:Answer
Annualised Return
a)
b)
c)*
d)
3.5%
3.0%
5.5%
4.0%
Annualised Standard
Deviation
16.5%
18.0%
17.0%
18.0%
7)
Total risk includes:a)
b)
c)
d)
Non-diversifiable risk + Diversifiable risk*
(Non-diversifiable risk + Diversifiable risk) - Investment risk
Non-diversifiable risk + Diversifiable risk + Liquidity risk
Non-diversifiable risk + Diversifiable risk + Business risk
8)
25th October 2013
Meadowbank TAFE – NSI
Course: Advanced Diploma Financial Planning
Version 1
Page 5 of 11
Section 734
Share point
Calculate the Holding period return for a shares acquired for $16 and pays dividends
totalling 80 cents. The share is sold for $22 at the end of the same year.
a)
b)
c)
d)
30%
42.5%*
40.0%
50.0%
9)
You purchase a security for $2,000 and hold it for four years and sell it for $4,000.
You have not received any income from the security over the four year period. What
is the yield on the security?
a)
b)
c)
d)
20.0%
18.92%*
17.92%
18.72%
10)
If the market value of a share is $30 and the book value of the same share is $20
what is the book value ratio?
a)
b)
c)
d)
$1.50*
$1.33
$0.66
$10.00
11)
The following facts relate to the receipt of a dividend:Item
Taxable Income
Tax Payable
Franking Credit Offset
25th October 2013
Meadowbank TAFE – NSI
100% Franked Dividend
$28,571
$1,971
$8,571
Course: Advanced Diploma Financial Planning
Version 1
Page 6 of 11
Section 734
Share point
The total tax payable is?
a)
b)
c)
d)
Zero
-$6,601*
$6,601
None of the above
12)
An unfranked dividend received by an investor from an Australian company?
a)
b)
c)
d)
Has a zero franking credit*
30% of the tax paid
3/7 of the dividend received
4/7 of the dividend paid
13)
A fully franked dividend of $1,000 would have a franking credit of:a)
b)
c)
d)
$300
$329
$429*
$700
14)
Which of the following is not a measure of a shares performance?
a)
b)
c)
d)
PEG ration, beta and book value
ROI, price to book value and return on equity*
Earnings per share, return on equity
Net profit margin, PEG ration and earnings per share
15)
Your client is concerned about market volatility and is seeking a defensive managed
investment which one of the following funds would you recommend:a)
b)
c)
d)
Perpetual Industrial Share Fund
APN Property Fund
Schroder Fixed Income Fund*
AMP Balanced Fund
25th October 2013
Meadowbank TAFE – NSI
Course: Advanced Diploma Financial Planning
Version 1
Page 7 of 11
Section 734
Share point
16)
Your client is concerned about market volatility and is seeking a growth managed
investment which one of the following funds would you recommend:a)
b)
c)
d)
BT Fixed Interest Fund
Schroder Fixed Income Fund
AMP Balanced Income Fund
Perpetual Industrial Share Fund*
17)
Which of the following is not a method for risk management:a)
b)
c)
d)
Retention, control, elimination and transfer
Transfer, control and contract out*
Elimination
Control, retention and transfer
18)
Which of the following is not a risk that might be confronted by an investor:a)
b)
c)
d)
Currency, credit, interest and legislative
Inadequate diversification and inflation
Mismatch, inflation and behavioural
Behavioural, emotional and legislative*
19)
The expected return of asset X is 0.08 and the expected return of asset Y is 0.10.
The assets form part of a portfolio on a 50:50 basis. What is the expected return of
the portfolio XY?
a)
b)
c)
d)
8.0%
9.0%*
8.5%
9.5%
20)
25th October 2013
Meadowbank TAFE – NSI
Course: Advanced Diploma Financial Planning
Version 1
Page 8 of 11
Section 734
Share point
A balanced investor would have the following allocation to Australian Shares.
a)
b)
c)
d)
2-28%
0-16%
25-48%*
28-55%
21)
Which statement is false about the use of financial leverage.
a)
b)
c)
d)
It magnifies profits
It magnifies losses
It may increases tax*
It may reduce tax
22)
Which of the following is not a fixed interest security commonly found in the
Australian financial market.
a)
b)
c)
d)
Commonwealth Government Bonds
Semi-government Bonds
Corporate Bonds and Notes
USB Index Bonds*
23)
Which of the following statements is incorrect about investing in gold?
a)
b)
c)
d)
Gold is more liquid than investing in other tangible investments.
Gold is a useful diversification instrument.
Increases in value at times of high interest rates*
Gold can hedge against inflation.
24)
Which of the following statements is not a reason for investors to use managed
investments?
a)
b)
c)
d)
Wealth accumulation
Storehouse of Value
Speculative vehicle for achieving higher returns
Hedge against inflation*
25th October 2013
Meadowbank TAFE – NSI
Course: Advanced Diploma Financial Planning
Version 1
Page 9 of 11
Section 734
Share point
25)
A listed managed fund has an NTA of $10 and unit price of $8. What will the listed
fund trade at?
a)
b)
c)
d)
20% premium
20% discount*
$2 loss
20% loss
25th October 2013
Meadowbank TAFE – NSI
Course: Advanced Diploma Financial Planning
Version 1
Page 10 of 11
Section 734
Share point
25th October 2013
Meadowbank TAFE – NSI
Course: Advanced Diploma Financial Planning
Version 1
Page 11 of 11
Section 734
Share point