Q6. Active vs Passive Activity Equity Portfollo Management Strategies When you were at lunch. you overheard a heated conversation benv'een two employees of Big Rock. One was arguing a case for active fund management strategies and the other was arguing a case for passive fluid management strategies. They decide to get your opinion on the two strategies to settle the argument. Required: Discuss the key characteristics ofactive fund management and passive tnd management. focusing on himr the 'ectivcs ofactive management differ from those of passively managed funds. 1 ' or. Calculating Bond visa. A few years ago. Big Rock invested in a number ofbonds with various maturity dates. Several ofthese bonds will mature in the coming months. However. there is some disagreement about how.r to calculate the bond yields. Some people are insisting that the nominal yield should be used. Others have said the yield-to-call should be used. And a third group believes that the realized yield should be used. Required: Explain each of the following methods that can be used to calculate the yield ofa bond. a. Nominal yield b. Yield to call c. Realized Yield \"I Page 5 of6 Q1. Risk and Return Big Rock is listed on the local stock exchange and its stock has had mixed performance over the last few months. The company's directors are interested in seeing how Big Rock's performance compares to other companies in the sector. Company Initial Value End Value End Value End Investment of Year 1 of Year 2 of Year 3 Big Rock Building Inc. $1,000 $1,268 $1,334 $1,105 Required: Calculate the arithmetic mean and the geometric mean over the three-year period for the investments made. (5 marks] GRADING GUIDE Q1 [5 marks]: 5 marks for calculation and correct answer Q2. Asset Allocation The company's pension plan is managed by Castle Fund Managers, a leading provider of pension services. It is a defined contribution plan, where the employees' contributions are matched by the employer. Each employee had to choose one of the following investment options for their individual plans: a. Preferred Accumulator (PA): Short-term focus b. Balanced Accumulator (BA): Medium-term focus c. Select Accumulator (SA): Long-term focus However, there has been some concern raised over how the pension fund is being managed. Some employees are upset that Castle Fund Managers uses a diversified asset allocation strategy for its investment. Required: Prepare a short report which explains: Page 2 of 6 FINA2004 Portfolio Management - Case Study Analysis. Academic Year 2021/2022, Semester 2 a. The importance of strategic asset allocation, b. Three (3) benefits of using this approach, c. Three (3) factors that could affect how assets are allocated.Q5. Analysis of Financial Statements There was a bit of concern about one of Big Rock's newer entities - Big Rock Paving Company. Management wants you to review the two financial statements below and give your analysis of the company's performance. Big Rock Paving Company Assets Liabilities Current Assets: Current Liabilities: Cash 500,000 Accounts Payable 700,000 Accounts Receivable 300,000 Notes Payable 500,000 Inventory 800,000 Total Current Assets 1,300,000 Total Current Liabilities 1,200,000 Fixed Assets: Owners' Equity: Property, Plant & Equipment 2,200,000 Common Stock ($1 Par) 600.000 Less: Accumulated Depreciation 600,000 Capital Surplus 100,000 Net Fixed Assets 1,600,000 Retained Earnings 100,000 Total Assets 2,900,000 Total Owners' Equity 800,000 Total Liabilities and Owners' 2,900,000 Equity Big Rock Paving Company Income Statement for Year Ending December 31, 2021 Sales 3,400,000 Less: Cost of Goods Sold 2,700,000 Less: Administrative Expenses 700,000 Less Depreciation 682,000 Earnings Before Interest and Taxes (682,000) Less: Interest Expense 120.000 Taxable Income (802,000) Less: Taxes (280.000) Net Income (522,000) Dividends Addition to Retained Earnings (522,000) Required: Evaluate the performance of Big Rock Paving Company using the below ratios. Define each ratio, perform the calculation, and provide an explanation of the result. Page 4 of 6 FINA2004 Portfolio Management - Case Study Analysis. Academic Year 2021/2022, Semester 2 a. Return on equity b. Total assets turnover c. Return on assets d. Current ratio e. Receivables turnover |Gilliam-rte Portfolio Mlle-aura Big Rock has several investment portfolios with a local mutual fluid company. ne of the company's directors asked you to assess the performance of five of the portfolios. Required: Calculate the Sharpe measure and the Trcynor measure for each portfolio. a. What is the Sharpe measure of: i. Portfolio A? ii. Portfolio C\"? iii. Portfolio E? Ill marks] In. What is the Trejrrtor measure of: i7 Portfolio A? ii? Portfolio C\"? iii. Portfolio E? It- marks] Q3. The Bond Market Big Rock's directors are looking to expand into a new suite of services. Although they are doing quite well in their existing lines of business, analysts have identified some new areas for development. One of these is expansion into manufacturing prefabricated homes. However, this venture requires a large amount of funding. To raise additional funds to finance this new project, the company is considering issuing a new bond. Required: Prepare a short report which supports the case for issuing a corporate bond. In your report, a. Explain what a corporate bond is, b. Outline the characteristics of the bond market, d. Explain the benefits of issuing bonds to raise financing Q4. Markowitz Portfolio Theory Saving cash in the bank is not as attractive as it was in the past, and Big Rock is looking to invest some of its surplus cash. In a meeting with senior managers in the company, you mention the Modern Portfolio Theory which was pioneered by Markowitz. Required: Explain to the senior managers, a. The purpose of the Markowitz Portfolio Theory, b. Who would benefit from this theory, c. What is the key component of the theory