Solution1 - AFC2140 Corporate Finance Tutorial 1 Investors...

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Unformatted text preview: AFC2140 Corporate Finance Tutorial 1: Investors, Firms and Markets The point of this exercise is to familiarise the students with the Australian Financial Review (AFR), and to get them thinking about some basic finance concepts. 1. See attached excel sheet. 2. See attached excel sheet – note all returns have been computed using the following formulae: % Total Increase = (End Value – Beg Value)/Beg Value x 100 End Value Beg Value 1 Simple Interest (p.a.) = 1 Time End Value Time Annual Interest (p.a.) = 1 Beg Value 3. Include dividends (plus any interest earned on them) in the ending value. You can get current dividend information from the AFR. Historical information will be available from brokers, individual companies, or previous editions of th e AFR (available in the library). Also dividend year books (such as the Australian Dividend Handbook) and Annual Stock Market Summaries (published by the ASX). Various broker’s websites also provide historical financial information on listed companies, including information on dividends. 4. The point of diversification is to reduce risk. Discuss the concept of risk as volatility of returns (both positive and negative). As we have only point estimates of returns on each investment, we don’t really have enough information to assess whether the volatility of returns on Isabel’s portfolio is any less than the volatility of returns on the other portfolios. 5. Point out companies index on back page. Current news stories: potentially many of them. News stories relating to the general economic conditions (page 19), CBA and NAB on page 53, WES and WOW on page 21 and RIO on page 26 will be particularly relevant to the portfolio investors analysed in this tutorial. 1 Portfolios on 22 February 2011 Company ANZ Banking Grp Code ANZ Shares 6300 Price $24.36 Total Value $153,468.00 Return Calculations Start Investment End Investment Time (in years) of the investment 1/01/1997 22/02/2011 14.1507 Dave 1 Julie 1 2 Coles Myer National Aust. Bank CML(now W ES) NAB 4820 1690 $33.15 $25.83 $159,783.00 $ 43,652.70 $203,435.70 Start Value End value Total % Change Simple interest p.a. Compound Interest p.a. For Simple Interest Dave $49,959.00 $153,468.00 207.19% 14.64% 8.25% Julie $49,979.60 $203,435.70 307.04% 21.70% 10.43% Aaron $49,224.00 $119,392.00 142.55% 10.07% 6.46% Isabel $49,895.30 $196,184.30 293.19% 20.72% 10.16% Aaron 1 W oodside Petroleum W PL 2,800 $42.64 $119,392.00 Isabel 1 2 3 4 5 6 7 8 9 10 ANZ Banking Grp Commonwealth Bank Coles Myer CSR Foster's Grp National Aust. Bank News Corp. Rio Tinto W oolworths W oodside Petroleum ANZ CBA CML (now WES) CSR FGL NAB NCP (now NWS) RIO W OW W PL 630 420 960 4630 1960 340 750 250 1650 280 $24.36 $53.21 $33.15 $3.49 $5.62 $25.83 $18.03 $85.10 $26.65 $42.64 $ $ $ $ $ $ $ $ $ $ 15,346.80 22,348.20 31,824.00 16,158.70 11,015.20 8,782.20 13,522.50 21,275.00 43,972.50 11,939.20 End Value Start Value 1 Annual Interest Time End Value Start Value 1 Annual Interest For Compound Interest Time $196,184.30 Note: * As a result of the acquisition of Coles Group by Wesfarmers Ltd in November 2007, Wesfarmers Ltd’s shares have been issued to Coles Group’s shareholders. It is assumed that Julie and Isabel have been allocated 4820 and 960 Wesfarmers shares, respectively – the same number of shares they had in Coles Group. End Value Start Value 1 Annual Interest ) Time End Value AnnualInterest StartValue 1 Time 1 2 ...
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