Question 4 (20 marks)

Two investors make an investment in the Australian equity market index (ASX200). Both investors have $100,000 of their own funds to invest, but one of these investors obtains a margin loan for an additional $60,000.

Required

1. If the index increases in value by 40%, calculate the net portfolio value, % return, and Loan to Value (LVR) of the portfolios of both investors? [5 marks]
2. Alternatively, if the index falls in value by 40%, calculate the net portfolio value, % return, and Loan to Value (LVR) of the portfolios of both investors? [5 marks]