Question 1:

Claire has recently contacted Lush Fields Banking to apply for a $615,000 home loan. As an employee of the branch, you are required to appraise the 20-year loan for your new client.

Required:

1. Assuming Claire is eligible for a 3.1% per annum interest rate, compounding fortnightly, what equal end of period repayments would be required to be made each fortnight in order to repay the loan over the agreed time?
2. Complete the loan repayment (amortization) schedule, including all relevant information, for the 13^th period only.
3. Assuming Claire, who just made her 13^th payment, recently got promoted and wanted to increase her loan repayments by $200 per fortnight. How many fortnights would now be required to repay her home loan (assuming there is no early repayment fees)?

Question 2:

William, who just turned 25 years old, has recently contacted you to assist him in developing a personalized retirement plan. Your client has expressed that he would like to budget for a 20-year annuity of $10,000 per quarter, at the beginning of each quarter, during retirement. William has also expressed that he would like to make an additional withdrawal of $90,000 on his 60^th birthday, the first day of retirement, to cover any unexpected expenses incurred during retirement.

William believes he could deposit $1,200 per quarter, at the end of each quarter, for the next 15 years. Your client also anticipates that they will deposit $50,000 in 15 years, from selling their antique collection of musical memorabilia. You have advised William that he can expect to earn 2% per annum, compounding quarterly, during his saving period, and 4% per annum, compounding quarterly, during his retirement period.

Required:

1. How much will William need to have in his savings account on his 60^th birthday in order to fund his intended series of withdrawals during retirement?

2. Considering Williams planned deposits over the next 15 years, what equal amount must he also save, at the end of each quarter, between the ages of 40 till 60, to meet his retirement goal?

3. Discuss the implications on Williams retirement plan if the general level of inflation is higher than anticipated once he retires? That is, what might be the impact of this increase in inflation rates on his intended series of deposits and/or withdrawals? Calculations are not required to support your discussion.

Question 3:

You have recently been hired by Vivienne to advise her on the risk and reward characteristics of the two securities she has already purchased. To support any advice provided, you have recently obtained the following information on the two securities and the market portfolio:

	A2M	NWS	Market Portfolio
Expected return	0.09	0.07	0.19
Standard deviation	0.07	0.05	0.15
Variance	0.0049	?	0.0225
Beta	?	0.48	?
Covariance with Market Portfolio	0.0154	0.0108	0.0225

Required:

1. Which security would you recommend Vivienne sell if she was only interested in holding one security in her portfolio?
2. Would you answer in Part a) change if Vivienne told you that she also held the market portfolio and wanted to reduce her level of risk by selling one of these two securities?
3. Vivienne was recently recommended a portfolio manager by one of her friends, who earnt a 21% rate of return while maintaining a portfolio Beta of 1.34. Please advice Vivienne as to whether this portfolio manager achieved an alpha, assuming the risk-free rate is 3%
4. If Vivienne wanted to invest $40,000 into NWS, while already holding $60,000 in the market portfolio, what would be the Beta of her two asset portfolio after purchasing NWS?

Question 4:

You have recently been hired by Christopher to assist him in evaluating the projected performance of a portfolio he is planning to construct. The following data is available for the securities he is considering to purchase:

Security	Expected return	Standard deviation	Beta
SGR	22%	17%	1.33
XRO	6%	4%	0.47
TPM	14%	8%	1.25

Your client is planning to invest 65% of his capital in security XRO, with the remainder being invested in security TMP. Previous analysis has found the correlation of returns between these two securities is 0.60.

Required:

1. If Christopher constructs the portfolio as he originally intended, calculate the expected return and the standard deviation of the resulting portfolio.
2. Assuming portfolio returns are normally distributed, what is the probability of the returns being less than 6% (i.e. the expected return if he only invested in XRO) for the portfolio created in Part a)?
3. The All Ordinaries Index (market portfolio) is currently valued $7,158 Assuming the market is expected to appreciate in value to $8,446.44 in one year, determine the expected rate of return on the market portfolio.

4. The All Ordinaries Index (market portfolio) is currently valued $7,158 Assuming the market is expected to appreciate in value to $8,446.44 in one year, determine the expected rate of return on the market portfolio.