Question
You are an analyst for Trust Funds and are looking at two potential investments to add to an already diverse portfolio. You are able to
You are an analyst for Trust Funds and are looking at two potential investments to add to an already diverse portfolio. You are able to ascertain the past returns of each investment and believe that future returns could be expected to be similar. You believe that these investments can be assessed both in isolation and as part of the portfolio.
INVESTMENT 1 | |||
Year | Cash Flow | Opening Val. | Closing Val |
1 | 1000 | 20000 | 22000 |
2 | 900 | 22000 | 21000 |
3 | 1600 | 21000 | 24000 |
4 | 400 | 24000 | 22000 |
5 | 2000 | 22000 | 23000 |
6 | 2000 | 23000 | 26000 |
7 | 900 | 26000 | 25000 |
8 | 2500 | 25000 | 24000 |
9 | 2100 | 24000 | 27000 |
10 | 2200 | 27000 | 30000 |
INVESTMENT 2 | |||
Year | Cash Flow | Opening Val. | Closing Val. |
1 | 1500 | 20000 | 20000 |
2 | 1600 | 20000 | 20000 |
3 | 1700 | 20000 | 21000 |
4 | 1800 | 21000 | 22000 |
5 | 1900 | 22000 | 23000 |
6 | 2000 | 23000 | 23000 |
7 | 2100 | 23000 | 23000 |
8 | 2200 | 23000 | 24000 |
9 | 2300 | 24000 | 25000 |
10 | 2400 | 25000 | 25000 |
The market returns for the same period have been as follows:
Market Returns for period | ||||
Year | Market | Year | Market | |
1 | 9% | 1 | 11% | |
2 | 7% | 2 | 8% | |
3 | 12% | 3 | 11% | |
4 | 12% | 4 | 10% | |
5 | 10% | 5 | 9% |
Calculate the annual return on investment per annum for both investments over the past 10 years, and then calculate the average return. (Assume that the stated cash flows equate to EBIT in each case).
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