Based on the following projected returns compare investment performance under the following scenarios. The figures are projected quarterly returns, are over an 8 year investment horizon and involve an initial investment of $250m. Explain the differences in the risk-adjusted performance between the alternative scenarios. a) Ungeared b) 60% gearing at 6.25% fixed-rate. Periodic payments are interest only with a balloon payment of $250 at the end of year 8. c) 70% gearing at 6.70% fixed-rate. Periodic payments include an equal instalment repayment of principal of $4m per quarter. The remaining outstanding principal is paid in a balloon payment at the maturity of the loan.

Quarter % Quarterly Return 1 2.92% 2 3.52% 3 -0.31% 4 2.48% 5 4.81% 6 2.93% 7 1.76% 8 -0.05% 9 -1.43% 10 1.51% 11 -1.45% 12 5.58% 13 2.62% 14 0.61% 15 -1.04% 16 1.13% 17 1.07% 18 7.26% 19 -1.46% 20 0.02% 21 3.70% 22 4.93% 23 2.26% 24 2.27% 25 -0.20% 26 1.87% 27 2.45% 28 1.25% 29 0.01% 30 2.01% 31 2.21% 32 1.35%