BERKSHIRE TEAM Portfolio Performance Report for the period ending 14/06/2020 PERFORMANCE Note: Some data and information in this Report has been removed for exam purposes Mod Duration at Start Of Quarter Mod Duration at End Of Quarter Cost Of Funds Market Value Start Market Value End Portfolio 4.36 3.38 1,100,000,000.00 1,112,292,192.26 Benchmark 3.70 3.46 5.01% 1,100,000,000.00 1,113,899,598.21 Difference CUMULATIVE PERFORMANCE Cost of Funds Portfolio Cost of Funds Benchmark Performance % 0.58% Outperformance Performance $ 1,607,405.95 Saving Central Treasury Accumulated Profits 564,568.65 Profit 4.43% 5.01% The benchmark represents a neutral position with respect no active management had been performed. the Central Treasury management. This is the cost that would be charged if RATE MOVEMENT The RBA lifted the cash rate by 25 basis points in the quarter indicating the RBA is removing the accommodative setting of monetary policy. Shorter-dated bond yields increased in line with the cash rate rise, longer-dated bond yields were largely unchanged. Banks increased their rates by an average of 40 basis points citing higher funding costs. The Fed kept rates on hold due to the weak state of the housing and labour markets. Europe also remained on hold with conditions stabilising. The AUD increased relative to both USD and the Euro as commodity prices, including copper also improved. Overnight Rate 3 months 6 months 9 months 12 months DB21 DB23 DB25 DB30 Table 1 - Movement in Yields Start Of End Of Quarter Quarter 4.25% 4.50% 4.65% 5.00% 4.95% 5.35% 5.15% 5.56% 5.27% 5.67% 5.20% 5.50% 5.95% 6.15% 6.30% 6.40% 6.65% 6.65% Table 2 - Cost of Funds Instrument CP3M DB21 DB23 DB25 DB30 Coupon 0.00% 5.20% 5.95% 6.30% 6.65% Cost Of Funds 4.65% 4.26% 3.88% ???? 6.54% BERKSHIRE TEAM Central Treasury Balance Sheet as at 14/06/2020 Consolidated Central Treasury Portfolio 1,511,665 0 1,163,182 0 348,483 0 1,113,678,494 0 1,113,678,494 15,085 2,124,613 1,118,716,159 15,085 2,124,613 1,116,151,5901 2,564,569 0 0 0 Assets Cash Receivables - Commodity/Currency - Administration Investments (INVCP3M) Market Value of Loans to Customers Interest on Cash Balances Deposit Margin Total Assets Liabilities Australian Dollars Cash Interest on Cash Balances Administration Payable Commercial Paper Domestic Bonds - 15/03/2021 Domestic Bonds - 15/03/2023 Domestic Bonds - 15/03/2025 Domestic Bonds - 15/03/2030 Swaps Variation Margin - 3 Year Contract Variation Margin - 10 Year Contract Brokerage due Total Australian Dollars United States Dollars Euro Bonds - 15/03/2023 Euro Bonds - 15/03/2030 Swaps Forwards Total United States Dollars Euros Euro Bonds - 15/03/2025 Swaps Forwards Total Euros Total Liabilities Net Assets Equity Shareholders Funds Accumulated Profits Total Equity 202,307,814 101,073,677 254,967,527 202,317,019 152,473,358 200, 145,219 (1,306,610) 0 15,000 1,113,379,305 0 98,086,898 (96,169,234) 0 1,917,663 97,131,654 (96,277,032) 0 854,622 1,116,151,590 2,564,569 202,307,814 101,073,677 254,967,527 202,317,019 152,473,358 200,145,219 (1,306,610) 0 15,000 1,113,379,305 0 98,086,898 (96,169,234) 0 0 0 1,917,663 97,131,654 (96,277,032) 0 0 854,622 1,116,151,590 0 2,564,569 0 2,000,000 564,569 2,564,569 2,564,569 0 Central Treasury Profit & Loss Statement for the period ending 14/06/2020 Consolidated Central Treasury Portfolio Revenue Interest on Cash Balances 15,085 15,085 Interest from Customer Loans 12,292,192 12,292,192 Investment Income (INVCP3M) 0 0 Foreign Exchange Gains Cash Related Incompetency 4,037 Administration Income Total Revenue 13,693,579 1,401,387 13,682,531 Expenses Interest Expense 12,296,229 12,296,229 Administration Expense Foreign Exchange Losses 0 Foreign Exchange Penalty Costs 0 0 Additional Penalty Costs 1,000 1,000 Operating Costs 831,781 831,781 Cash Related Incompetency 0 4,037 13,682,531 Total Expenses Gross Profit 13,129,010 564,569 836,818 564,569 Deal Date Security Code Yield Issue/Invest Pay/Rec Issue/Sell Face Value (Currency of Issue) 102,500,000.00 Spot Rate 1.0000 Proceeds 1 15/3/2020 DB23 2 Issue/Sell 3,000.00 1.0000 15/3/2020 Comments FUTBYR Wrong Price Note: values in this column have been deleted for exam purposes Note: values in this column have been deleted for exam purposes QUESTION 4 Today is the 14th June 2020. For any calculations, assume that each quarter year is exactly 0.25 of a year. That is, do not use the exact number of days in the quarter. Note: The game begins on 15 March 2020 with an advance of $100m to A Port Authority to be repaid over 8 years. Bond coupons and fixed swap payments occur in March and September. You may need to draw on information from the following documents ("Gamebook Final Exam', 'Berkshire Team Performance Report and Various Game Information') which you will find in QUESTION 1. Required: (a) [4 marks] (i) On page 5 of the 'Berkshire Team Performance Report the back-office has noted that the team entered the Wrong Price' for Deal 2. What is the correct price for this deal? (ii) Calculate how much Berkshire team raised (net) for the portfolio on 15th March 2020. Do not include commodity or FX transactions. You must show all calculations in your answer. (b) [5 marks] Comment on the portfolio performance of Berkshire team during the quarter ending 14th June 2020. Make sure you identify the drivers of that performance. Do not include commodity and FX hedging performance in your comments. Make sure you clearly label your answers with (a)(i), (a)(ii) and (b). For the toolbar, press ALT+F10 (PC) or ALT+FN+F10 (Mac). BERKSHIRE TEAM Portfolio Performance Report for the period ending 14/06/2020 PERFORMANCE Note: Some data and information in this Report has been removed for exam purposes Mod Duration at Start Of Quarter Mod Duration at End Of Quarter Cost Of Funds Market Value Start Market Value End Portfolio 4.36 3.38 1,100,000,000.00 1,112,292,192.26 Benchmark 3.70 3.46 5.01% 1,100,000,000.00 1,113,899,598.21 Difference CUMULATIVE PERFORMANCE Cost of Funds Portfolio Cost of Funds Benchmark Performance % 0.58% Outperformance Performance $ 1,607,405.95 Saving Central Treasury Accumulated Profits 564,568.65 Profit 4.43% 5.01% The benchmark represents a neutral position with respect no active management had been performed. the Central Treasury management. This is the cost that would be charged if RATE MOVEMENT The RBA lifted the cash rate by 25 basis points in the quarter indicating the RBA is removing the accommodative setting of monetary policy. Shorter-dated bond yields increased in line with the cash rate rise, longer-dated bond yields were largely unchanged. Banks increased their rates by an average of 40 basis points citing higher funding costs. The Fed kept rates on hold due to the weak state of the housing and labour markets. Europe also remained on hold with conditions stabilising. The AUD increased relative to both USD and the Euro as commodity prices, including copper also improved. Overnight Rate 3 months 6 months 9 months 12 months DB21 DB23 DB25 DB30 Table 1 - Movement in Yields Start Of End Of Quarter Quarter 4.25% 4.50% 4.65% 5.00% 4.95% 5.35% 5.15% 5.56% 5.27% 5.67% 5.20% 5.50% 5.95% 6.15% 6.30% 6.40% 6.65% 6.65% Table 2 - Cost of Funds Instrument CP3M DB21 DB23 DB25 DB30 Coupon 0.00% 5.20% 5.95% 6.30% 6.65% Cost Of Funds 4.65% 4.26% 3.88% ???? 6.54% BERKSHIRE TEAM Central Treasury Balance Sheet as at 14/06/2020 Consolidated Central Treasury Portfolio 1,511,665 0 1,163,182 0 348,483 0 1,113,678,494 0 1,113,678,494 15,085 2,124,613 1,118,716,159 15,085 2,124,613 1,116,151,5901 2,564,569 0 0 0 Assets Cash Receivables - Commodity/Currency - Administration Investments (INVCP3M) Market Value of Loans to Customers Interest on Cash Balances Deposit Margin Total Assets Liabilities Australian Dollars Cash Interest on Cash Balances Administration Payable Commercial Paper Domestic Bonds - 15/03/2021 Domestic Bonds - 15/03/2023 Domestic Bonds - 15/03/2025 Domestic Bonds - 15/03/2030 Swaps Variation Margin - 3 Year Contract Variation Margin - 10 Year Contract Brokerage due Total Australian Dollars United States Dollars Euro Bonds - 15/03/2023 Euro Bonds - 15/03/2030 Swaps Forwards Total United States Dollars Euros Euro Bonds - 15/03/2025 Swaps Forwards Total Euros Total Liabilities Net Assets Equity Shareholders Funds Accumulated Profits Total Equity 202,307,814 101,073,677 254,967,527 202,317,019 152,473,358 200, 145,219 (1,306,610) 0 15,000 1,113,379,305 0 98,086,898 (96,169,234) 0 1,917,663 97,131,654 (96,277,032) 0 854,622 1,116,151,590 2,564,569 202,307,814 101,073,677 254,967,527 202,317,019 152,473,358 200,145,219 (1,306,610) 0 15,000 1,113,379,305 0 98,086,898 (96,169,234) 0 0 0 1,917,663 97,131,654 (96,277,032) 0 0 854,622 1,116,151,590 0 2,564,569 0 2,000,000 564,569 2,564,569 2,564,569 0 Central Treasury Profit & Loss Statement for the period ending 14/06/2020 Consolidated Central Treasury Portfolio Revenue Interest on Cash Balances 15,085 15,085 Interest from Customer Loans 12,292,192 12,292,192 Investment Income (INVCP3M) 0 0 Foreign Exchange Gains Cash Related Incompetency 4,037 Administration Income Total Revenue 13,693,579 1,401,387 13,682,531 Expenses Interest Expense 12,296,229 12,296,229 Administration Expense Foreign Exchange Losses 0 Foreign Exchange Penalty Costs 0 0 Additional Penalty Costs 1,000 1,000 Operating Costs 831,781 831,781 Cash Related Incompetency 0 4,037 13,682,531 Total Expenses Gross Profit 13,129,010 564,569 836,818 564,569 Deal Date Security Code Yield Issue/Invest Pay/Rec Issue/Sell Face Value (Currency of Issue) 102,500,000.00 Spot Rate 1.0000 Proceeds 1 15/3/2020 DB23 2 Issue/Sell 3,000.00 1.0000 15/3/2020 Comments FUTBYR Wrong Price Note: values in this column have been deleted for exam purposes Note: values in this column have been deleted for exam purposes QUESTION 4 Today is the 14th June 2020. For any calculations, assume that each quarter year is exactly 0.25 of a year. That is, do not use the exact number of days in the quarter. Note: The game begins on 15 March 2020 with an advance of $100m to A Port Authority to be repaid over 8 years. Bond coupons and fixed swap payments occur in March and September. You may need to draw on information from the following documents ("Gamebook Final Exam', 'Berkshire Team Performance Report and Various Game Information') which you will find in QUESTION 1. Required: (a) [4 marks] (i) On page 5 of the 'Berkshire Team Performance Report the back-office has noted that the team entered the Wrong Price' for Deal 2. What is the correct price for this deal? (ii) Calculate how much Berkshire team raised (net) for the portfolio on 15th March 2020. Do not include commodity or FX transactions. You must show all calculations in your answer. (b) [5 marks] Comment on the portfolio performance of Berkshire team during the quarter ending 14th June 2020. Make sure you identify the drivers of that performance. Do not include commodity and FX hedging performance in your comments. Make sure you clearly label your answers with (a)(i), (a)(ii) and (b). For the toolbar, press ALT+F10 (PC) or ALT+FN+F10 (Mac)