Time Value of Money and Annuities
The Preliminary Materials Question 1 describes a scenario where a church organisation has adopted a savings and borrowing plan for the purpose of developing a project. You are reviewing the church’s plans and providing them with advice in light of this year’s unprecedented economic and market performance.

a.) Calculate how much the church is projected to accumulate from depositing their $700 000 into the fund. Give your answer correct to the nearest cent and provide relevant working. (3 marks)

b.) Calculate how much the church borrows from the bank and the periodic repayments made in the first five years and also in the subsequent periods. Give your answers correct to the nearest cent and provide relevant working. (5 marks)

c.) The market conditions we have experienced this year arising from the global pandemic and the resultant lockdowns and business restrictions may affect investment returns. Identify and explain
three strategies that the church organisation can take in relation to managing the financing of this development project to ensure that they are able to see its completion. (7 marks)

Question 2 [15 marks]
Risk and Return
In Question 2 of the Preliminary Materials, you investigated the expected returns and standard deviation of returns for different asset classes based on the work performed by your analyst. These results will assist you in preparing a report to advise your client in building a portfolio for a superannuation fund.

a.) Based on your calculations, demonstrate whether commercial property or residential property is expected to deliver better returns relative to its risk. Show your calculations and briefly explain your
reasoning. (6 marks)

b.) Demonstrate using an example of two assets of your choice to what extent two assets’ returns are correlated with each other. Interpret your results. (5 marks)

c.) Portfolio managers combine different asset classes to build their portfolio to meet their investment objectives. Explain using the High Growth strategy two factors that the manager may consider in deciding the combination of asset classes as given in the Preliminary Materials. Note that this question is not asking how the manager selects which assets to include, but the proportion of each asset class (4 marks)

Question 3 [15 marks]
Valuation of Financial Instruments
In Question 3 of the Preliminary Materials, you estimated the price of two bonds and an equity instrument for the purpose of determining how much to include of each in an investment portfolio.

a.) Providing appropriate parameters and working, discuss whether the government bond or the corporate bond is more sensitive to changes in the interest rate. (7 marks)

b.) Assuming for the stocks in the motorway company are expected to pay dividends as predicted in the first model, how many units would you expect to buy now if you plan to spend $150 000 and the
market price is the same as the price based on your calculations? Provide relevant parameters and working. (4 marks)

c.) Identify and explain two economic and market factors that you would evaluate to assist you in determining the amount of each asset you would include in your portfolio in order to meet your
objectives of having a stable, regular cashflow stream and the opportunity to generate capital gains.
(4 marks)

Question 4 [25 marks]
Capital Budgeting
In Question 4 of the Preliminary Materials, you performed an analysis on developing a gold mine in light of modelling the potential operating performance and economic conditions.
You are required to present your case to the Board of Directors regarding your team’s analysis of the gold mine development. Develop a suitable set of points that can be organised into a presentation slide deck that will address the following questions:
a.) What are the features of this project? (2 marks)

b.) What approach are you taking to perform the analysis? (4 marks)

c.) What key assumptions are being made in your analysis? (6 marks)

d.) What are the key findings in your analysis? (8 marks)

e.) Based on your analysis, suggest whether this project should proceed. (5 marks)