Fundamentals Of Investing Answers | Assessment Answer

Recommendations Made to Mr. X Based on the Analysis:

The overall evaluations regarding different types of investment proposals can be offered to Mr. X which might assist him to identify the best prospect of investment opportunity. On the other hand, the on the whole investment, which can be implemented by Mr. X is further assessed. In this context Mr X is convinced to allocated fund of SGD 1.3 million to ENBL, which may assist in enhancing the yield from investment and supporting his possible future requirements.

After attending the dinner presentations, which was conducted by AHPL, some vital information’s was collected by Mr. X.

1. When the first alternative for investment is taken into the account the yield after two year period would be 24%. Hence, the annual amount of investment return can be considered 12%. Anson Home Pte Ltd would be making investment in German corporations, which is well- established and has the reputation of offering good returns for more than a period of eight years.

The amount of return that will be offered annually by Anson Home Pte Ltd is 12%. This would enable Mr. X to receive return at the end of the first year of investment.

Return generated at the end of first year will be 1 year = 13% of 1.3 million = .156 and return at the end of the second year .156 as the investment is made over for the time frame of two years, the principle amount of investment would be returned at the end of second year. It must be noted that the investment proposal is fulfilling the criterion of being completely risk free of the currency and real estate. However, the return from investment is dependent on the German economy and it cannot be considered as certain due several reasons.

Advantages of Investing:

It is noted that Anson Ltd is providing high rate of return of 24% under a short period. There are no suspicions in the German market and hence the investors are not potentially exposed to any kind of real estate risk as the investors are covered under the insurance policy. Therefore, Mr. X can be assured of the return from any unforeseen circumstances arises under the German economy.

Disadvantages of Investment:

It is evident that any sort of investment is not free of market risk. However, the anticipated amount of yield or return that will be generated from the investment made in Anson Ltd is not guaranteed (Aouni, et al., 2014). The return generated is affected by the numerous elements in the form of political risk and political uncertainty.

Mr. X. is keen on making an investment as it offers a insurance coverage with high rate of return. Furthermore, the merits and demerits of investment in German corporations could be concluded below;

1. The opportunity for investment is mouth watering and may provide the required amount of return, which is needed by Mr. X. in order to, assist his future prospect.
2. The investment opportunity predicts high rate of returns, which could be enjoyed by Mr. X under a single portfolio. The overall investment under the solitary German corporations may potentially increase the risk of portfolio, which may reduce the desired amount of return from investment.
3. The investment opportunity could assist Mr. X to generate around 0.156 million at the initial year of investment. The estimated return from investment made may certainly assist Mr. X to generate the desired amount return from the investment.
4. However, the solitary disadvantages that is associated is the overall rate of inflation prevailing in Singapore which stood 3% per annum, and has the potentiality to effect the yearly income yielded from investment.

Investment in Anson Home Pte Ltd and Ever strong National Bank Ltd may only provide return from investment but also has the capacity to maximize the concerned risk in investment (Bingham & Kiesel, 2013).. The opportunity to invest is dependent on the tendency of investors making investment. Below listed is the overall portfolio division is mentioned  below by ENBL;

Local stocks= 65% Bonds = 15% Foreign stock = 15% Cash and foreign currencies equivalent= 5%

The allocation of asset as per the above proposition of the investment option Asset allocation for Mr. X, as advised by Mr. Billy = (.65*1.3 + .15*1.3 + .15*1.3 + .05*1.3) = ( .845 + .195 + .195 + .65 )

Table 1: showing the portfolio construction of Mr. X

(Source: As mentioned in case study)

The suggested portfolio management mainly portrays the amount of return generated for Mr. X as depicted by the financial advisors of ENBL.

Local stocks= 21% Bonds = 12% Foreign stock = 50% Foreign Fixed interest rate bonds = 15% Cash and foreign currencies equivalent= 2%

The allocation of asset as per the above proposition of the investment option Asset allocation for Mr. X, as advised by Mr. Billy = (.21*1.3 + .12*1.3 + .50*1.3 + .15*1.3 + .02*1.3) = ( .34 + .156 + .65 + .195 + 0.026 )

Table 2: showing the portfolio constructions of Mr. X

(Source: Created by Author)

The above stated table illustrates the overall portfolio, which could be effectively depicted for Mr. X may help in yielding higher rate of return from investment. The recommended investment opportunity may be helpful in improving the profitability of Mr. X. the suggested portfolio may represents an increase in investment in foreign equities and fixed interest rate bonds, which may assist Mr. X  to generate high amount of revenue.

Figure 1: Comparison of return from investment

 

Figure 2: Comparison of return of S & P 500 index with rising Market

From the above stated figure, the overall amount of investment, which could be generated from the rising market, can be easily evaluated. It can be observed that the portfolio of Mr. X may increase with the rise of foreign market equities in order to generate high rate of return from investment. Furthermore, risk, which may generate from the equity market may be exposed to the portfolio, may maximize the overall profit from such investment, and reduces the risk of investment. As mentioned by (Fabozzi & Mann, 2012) effective analysis of portfolio, investment could lower the risk from investment, which may essentially assist in generating high rate of return. It is recommended that Mr. X should invest in National Bank Ltd as the desired amount of return is not high but he can expect an average annual growth rate of 7-12% of the fund invested (Hull, 2012). The risk can be managed and can be effectively balanced by including and excluding the assets, which directly determines the performance of the portfolio.

Reference List:

Aouni, B., Colapinto, C., & La Torre, D. (2014). Financial portfolio management through the goal programming model: Current state-of-the-art.European Journal of Operational Research, 234(2), 536-545.

Bingham, N. H., & Kiesel, R. (2013). Risk-neutral valuation: Pricing and hedging of financial derivatives. Springer Science & Business Media.

Bolton, P., Chen, H., & Wang, N. (2013). Market timing, investment, and risk management. Journal of Financial Economics, 109(1), 40-62.

Fabozzi, F. J., & Mann, S. V. (2012). The handbook of fixed income securities. McGraw Hill Professional.

Georgarakos, D., & Inderst, R. (2014). Financial advice and stock market participation. Available at SSRN 1641302.

Hull, J. (2012). Risk Management and Financial Institutions, (Vol. 733). John Wiley & Sons.

McNeil, A. J., Frey, R., & Embrechts, P. (2015). Quantitative risk management: Concepts, techniques and tools. Princeton university press.

Rutkauskas, A. V., Stasytyte, V., & Borisova, J. (2015). Adequate Portfolio As A Conceptual Model Of Investment Profitability, Risk And Reliability Adjustment To Investor ‘S Interests. Economics and Management, (14), 1170-1174.