QUESTION 1- TABLE 1 (below) includes price data on the ASX All Ordinaries Index, and the four major banks (the NAB; CBA; ANZ and Westpac) from years 2005 to 2015:
TABLE 1: (Source: https://au.finance.yahoo.com)
|
Year
|
NAB
|
CBA
|
ANZ
|
WBC
|
AORD
|
NAB%
|
CBA%
|
ANZ%
|
WESTPAC%
|
AORD%
|
|
2005
|
12.55
|
18.25
|
10.83
|
9.84
|
4708.80
|
|
|
|
|
|
|
2006
|
16.69
|
22.71
|
13.57
|
11.26
|
5461.60
|
|
|
|
|
|
|
2007
|
16.63
|
29.16
|
14.10
|
13.85
|
6421.00
|
|
|
|
|
|
|
2008
|
10.22
|
15.56
|
8.66
|
9.20
|
3659.30
|
|
|
|
|
|
|
2009
|
14.62
|
32.27
|
13.98
|
14.76
|
4882.70
|
|
|
|
|
|
|
2010
|
13.87
|
32.43
|
15.37
|
14.10
|
4846.90
|
|
|
|
|
|
|
2011
|
15.14
|
34.47
|
14.80
|
14.05
|
4111.00
|
|
|
|
|
|
|
2012
|
18.17
|
47.70
|
19.70
|
20.23
|
4664.60
|
|
|
|
|
|
|
2013
|
27.65
|
64.38
|
27.27
|
27.39
|
5353.10
|
|
|
|
|
|
|
2014
|
29.14
|
76.35
|
29.32
|
30.27
|
5388.60
|
|
|
|
|
|
|
2015
|
29.14
|
82.27
|
27.93
|
33.56
|
5174.30
|
|
|
|
|
|
|
|
Exp Return
|
|
|
|
|
|
|
Risk
|
|
|
|
|
|
(a) Complete Table 1 above by calculating the annual returns for the All Ordinaries Index and the ‘Big Four Banks' in the first step and the expected return and risk for both in the second step. The completed table MUST be submitted with your assignment. All final calculations should be correct to two decimal places expressed as a percentage. Show ALL workings here in an appendix at the end of your assignment. The workings in the appendix may be hand-written.
(b) Based on your results in Table 1, assess the performance of the Big Four Banks as a group relative to the market as a whole in the last ten years. You may make use of other sources including newspapers, articles, books, media etc. to support your answer. Your answer should not exceed 400 words.
(c) Discuss two objectives of financial regulation of banks. Include in your answer the significance of the Australian Government's "Four Pillar Policy". Your answer should not exceed 400 words.
QUESTION 2-
Your group manages investment funds and your job is to advise clients on what portfolio best suits their needs, given their characteristics.
You have three different customer types:
I. A young Deakin Commerce graduate (Daniel) with a long and successful career ahead of him.
II. A middle aged couple (Mr. and Mrs. Gomez) who are high income earners. They plan to retire in 10 years time.
III. An older member of the work force (John) who is hoping to retire in the next 12 months.
There are 3 different portfolio packages that you offer clients:
PORTFOLIO X: 20% Australian shares; 40% property; 40% Australian bonds.
PORTFOLIO Y: 70% cash; 20% Australian bonds; 10% property.
PORTFOLIO Z: 50% Australian shares; 30% International shares; 20% property.
Your task is to answer the following questions by referring to your textbook, other finance books, the media, the internet etc.:
(a) By using the information in TABLE 2 (page 4) calculate the expected return, denoted by E(R), and the risk (standard deviation), denoted by σ, for each of the five asset classes as well as the three portfolios in Table 2 and include your answers in the table. The completed table should be submitted with your assignment. Show ALL workings in the Appendix after the reference list. All final calculations should be correct to two decimal places (two numbers after the dot point) expressed as a percentage. The workings in the
appendix may be hand-written.
(b) Describe the features and important characteristics of each of the three portfolios in Table 2. Include in your answer the meaning of a portfolio and a discussion of the expected return and risk of the three portfolios relative to the individual asset classes that comprise the portfolios. Use the results/numbers in Table 2 to illustrate. Your answer should not exceed 800 words.
(c) For each of the three customer types that you have, recommend the most suitable portfolio option and justify your choice. Use language here that the customers will understand. You should use a graph here to show the historical return performance of each of your portfolios to assist with your recommendation. Your answer should not exceed 800 words.
TABLE 2: Historical returns for the major asset classes (Source: www.vanguardinvestments.com.au)
|
Year
|
Australian Shares
|
International Shares
|
Property
|
Australian Bonds
|
Australian T-notes
|
Portfolio X
|
Portfolio Y
|
Portfolio Z
|
|
1995
|
20.20%
|
26.50%
|
12.70%
|
18.60%
|
8.00%
|
16.56%
|
10.59%
|
20.59%
|
|
1996
|
14.60%
|
6.80%
|
14.50%
|
11.90%
|
7.60%
|
13.48%
|
9.15%
|
12.24%
|
|
1997
|
12.20%
|
41.70%
|
20.30%
|
12.20%
|
5.60%
|
15.44%
|
8.39%
|
22.67%
|
|
1998
|
11.60%
|
32.60%
|
18.00%
|
9.50%
|
5.10%
|
13.32%
|
7.27%
|
19.18%
|
|
1999
|
16.10%
|
17.50%
|
-5.00%
|
-1.20%
|
5.00%
|
0.74%
|
2.76%
|
12.30%
|
|
2000
|
3.60%
|
2.50%
|
17.80%
|
12.00%
|
6.20%
|
12.64%
|
8.52%
|
6.11%
|
|
2001
|
10.10%
|
-9.40%
|
14.60%
|
5.50%
|
5.30%
|
10.06%
|
6.27%
|
5.15%
|
|
2002
|
-8.10%
|
-26.90%
|
11.80%
|
8.80%
|
4.80%
|
6.62%
|
6.30%
|
-9.76%
|
|
2003
|
15.90%
|
0.00%
|
8.80%
|
3.00%
|
4.90%
|
7.90%
|
4.91%
|
9.71%
|
|
2004
|
27.60%
|
10.80%
|
28.00%
|
7.00%
|
5.60%
|
19.52%
|
8.12%
|
22.64%
|
|
2005
|
21.10%
|
17.60%
|
12.50%
|
5.80%
|
5.70%
|
11.54%
|
6.40%
|
18.33%
|
|
2006
|
25.00%
|
12.30%
|
34.00%
|
3.10%
|
6.00%
|
19.84%
|
8.22%
|
22.99%
|
|
2007
|
18.00%
|
-1.60%
|
-8.40%
|
3.50%
|
6.80%
|
1.64%
|
4.62%
|
6.84%
|
|
2008
|
-40.40%
|
-24.90%
|
-32.00%
|
14.90%
|
7.60%
|
-14.92%
|
5.10%
|
-34.07%
|
|
2009
|
39.60%
|
5.00%
|
7.90%
|
1.70%
|
3.50%
|
11.76%
|
3.58%
|
22.88%
|
|
2010
|
3.20%
|
-0.70%
|
-1.10%
|
6.00%
|
4.40%
|
2.60%
|
4.17%
|
1.17%
|
|
2011
|
-10.50%
|
-5.30%
|
-1.50%
|
11.40%
|
5.00%
|
1.86%
|
5.63%
|
-7.14%
|
|
2012
|
20.26%
|
14.55%
|
33.06%
|
5.81%
|
4.50%
|
19.60%
|
7.62%
|
21.11%
|
|
2013
|
20.20%
|
53.63%
|
7.07%
|
0.66%
|
3.00%
|
7.13%
|
2.94%
|
27.60%
|
|
2014
|
12.90%
|
20.40%
|
11.10%
|
6.10%
|
2.70%
|
9.46%
|
4.22%
|
14.79%
|
|
E(R)
|
|
|
|
|
|
|
|
|
|
σ
|
|
|
|
|
|
|
|
|