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Investment Advice

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Question 1

a) Preparation of the balance sheet

The balance sheet, as one of the fundamental financial statements has been prepared for the clients mentioned in "case study 1" d Rodney and Sarah. As mentioned by Jeenas (2019), a balance sheet can be identified as a statement containing the "assets, liabilities and owner's equity" comprised within a business prepared after the end of the financial year reflecting on operations. The total assets of clients, "Rodney and Sarah" showcases to be $1,285,000 whereas the total liabilities are computed to be $1,200,000 which helps estimate the net assets ("total assets less liabilities") to be $85,000 left for the clients.

"Balance sheet





Other assets (contents)







Bank deposits


Total assets





Superannuation fund Rodney in APM


Superannuation fund of Sarah in HESTA


Total liabilities


Net assets


Table 1: Estimation of the balance sheet for Rodney and Sarah

b) Preparation of the “cash flow statement”

The cash statement is prepared for the clients which showcases that they are generating "net cash inflows" amounting to $7,550 which is derived with the contribution of the formula "cash inflow less cash outflow".

"Cash flow statement

Cash inflow


Earnings of Rodney


Earnings of Sarah


Total cash inflow


Cash outflow

Interest on loan


Loan repayments


Living expenses


Total cash outflow


Net cash inflow/(outflow)


Table 2: Computation of the "cash flow statement" for Rodney and Sarah

c) Identification of 7 planning issues identified after the preparation of the balance sheet and cash flow

While preparing the financial statement for the clients the areas where planning issues were identified were:

  1. Unclear data regarding SG earnings
  2. Haphazard data creates confusion to construct statements
  3. Depreciation on assets cannot be determined
  4. The yearly income is too low
  5. The cash outflows of the clients are high
  6. Clients do not earn any interest on bank deposits
  7. The living expenditures of this couple are high

Question 2

a) Estimation of Brett’s risk profile and identification of the risk indicators

The investor Brett has a profile where he mentions various "types of investment made by him" including bank, term deposits and investment on shares along with managed and superannuation funds. The beta values of the shares invested in had been derived where it mentioned that NAB shares, ANZ shares, Westpac shares and CBA shares contain beta values or risk factors of 0.96, 0.90, 0.99 and 1.11 respectively (Infrontanalytics, 2023). It can be stated that CBA shares contain the highest beta value however the risk enlisted with other stocks is quite similarly valued. As opined by Bondarenko et al. (2021), risk management in investment involves the critical identification along with analysis of risks within investment profiles requiring to determine whether the risk must be "accepted or rejected" provided the "expected returns of the investment".




Bank account


Term deposit


Term deposit


NAB shares



ANZ shares



Westpac shares



CBA shares



Managed fund


Superannuation fund


Standard deviation




Table 3: Estimation of the risk profile of Brett's investments

In this case, the risk of the investment profile has been completed using the risk measurements like the "standard deviation and value at risk (VaR)" calculations as the “indicators of risk profile”. The computation of the standard deviation of the beta values has been estimated is resulting to be 0.088 which entails that the risk profile of Brtett is moderate. On the other hand, the VaR computation results are 0.0078 which is the "measure of the risk of loss for investments". 

b) Comparison of Brett’s age at 25 and 62 years while establishing the risk profile

Currently, Brett is identified to be an investor who is 50 years old and his risk profile assigns him to be a moderate risk-bearer. Age can be a b determinant to consider the risk appetite of an investor as riskier investments can become better appropriate for young investors compared to an elderly investor (Linkedin, 2022). It can be mentioned in this case that Brett can assist his age for the assistance of his risk profile as he is identified to be a middle-aged person who has a moderate risk appetite, which is also showcased in his investment profile.

If Brett was 25 years old then he could have invested in high-risk assets as his risk appetite would be comparatively higher and therefore tolerate high risk because high-risk assets have opportunities in generating higher returns. On the other situation, when Brett becomes 62 years of age, becoming more older it will entail that his risk appetite would reduce to a minimum and he will become a risk-averse investor wanting to cut back "on the amounts of risks" within the investment portfolio". As per the opinion of Ainia and Lutfi (2019), risk tolerance can get estimated by the proportion of risk-prone assets to "total wealth" because risk tolerance boosts with age at the time when further variables are restrained.

c) Consideration of the “viable funding option” for Brett

The investor wishes to spend $50,000 for a car purchase along with a further $50,000 for a holiday for which he can use $20000 from the bank deposit and the remaining $30000 from 1st term deposit to buy the car. The remaining $20000 from 1st term deposit and $30000 from 2nd term deposit can be used for spending on holiday.

Question 3

a) Description of the viability of the pension fund

The elderly couple "Alfonse and Alice" both aged 65 years are on the verge of retiring within a year and it is identified that the combined superannuation fund amounts to $8,50,000 with earnings from the same at 5% per annum. Therefore, the yearly earnings of the couple would be $42,500 ($850,000 * 5%). However, their "combined retirement funds" will not last long at the time they are reaching their life expectancy as they wish to pursue a combined income amounting to $65,000 each year. The overall income generated by the couple is $95000 ($75000 warned by Alfonse and $15000 earned by Alice). Therefore, it is required for the couple to save the remaining income which is $30000 ($95000 - $65000) assuming that the living expenses of the couple are $65000 currently.

b) 3 trade-offs considered for improving the retirement capacity

The retirement capacity of the couple can be improved based on "Australia's 3 pillar retirement income system" supporting elderly Australians. This includes:

  • "a means-tested Age Pension
  • mandatory superannuation conservancies, and
  • voluntary personal savings both inside and outside the superannuation scheme" (, 2023)

Alfonse and Alice can trade off their retirement capacities by:

  1. Investing more in their superannuation funds to generate better returns like the excess amount they are saving after spending on living expenses as the percentage of the superannuation fund rates are being raised by the Australian government as the "total amount of superannuation assets" rise.
  2. The superannuation funds have distributional impacts as the tax concessions are received in this fund type. Along with this, once the individuals reach their preservation age, pullbacks from superannuation accounts are normally tax-free, which can be a trade-off for the old couple.
  3. The couple might also think about reducing their expenses further by cutting off any high-standard living style where they can sell their present home at "inner-city terrace" amounting to $2 million and purchase a less expensive house or shift entirely to the holiday home which they wish to keep.

c) 5 main considerations for constructing a portfolio

The 5 major considerations which are required to be highlighted are mentioned:

  1. Risk attitude, as this outlines the risk levels involved in the portfolio
  2. The Timescale of the investments determines how long dies the investor wishes to contribute until it can be spent
  3. Growth or income generated along with the determination of taxation implication to highlight the profitability
  4. Diversifications of portfolio risks for minimising risks and maximizing profits
  5. Focusing on sustainability as well as on ethical investing to award the companies that follow ethical business practices

Question 4

a) Calculation of “expected return of Jason’s share portfolio”

The “expected return of Jason’s share portfolio” is estimated at 5.98% which is calculated as,

(Argo's weight* Argo's return) + (BHP's weight* BHP's return) + (Woolworths's weight* Woolworths's return) + (Wesfarmers's weight* Wesfarmers's return) + (CBA's weight* CBA's return).

= (0.25*6%)+ (0.18*11%)+ (0.23*4%)+ (0.15*5%)+ (0.20*4.5%)= 5.98%

The "expected return within the portfolio" can be estimated by the multiplication of the weight that is assigned to the individual asset within the portfolio by the estimated return rate (Zhang et al. 2020). Then all the individual values are added for estimating the total return that is expected to be generated from the portfolio as well as highlighting the portion of return that the investor can generate from the projected portfolio.

b) Calculation of “tracking error of Jason’s managed fund over the 12 months”

Tracking errors can be defined to be the "annualised standard deviations" concerning the differences projected in the returns estimated between the target index and the "index fund" (Drei et al. 2019). The tracking error in this case generated is 0.018 which indicates the passive fund which is followed by its "benchmark very closely.

The tracking error for the portfolio of the managed fund for Jason is estimated as

"Tracking error= Standard deviation of portfolio returns - Standard deviation of benchmark returns"

= 0.03 - 0.01= 0.018.

c) Estimation of beta value for Jason’s portfolio and inferences of the beta value

The beta (β) which is contained within the portfolio can be referred to as the measure concerning the estimation of the volatility along with the projection of systematic risks (Alessandrini and Jondeau, 2019). This is based on the portfolio or security compared to its market or benchmark "as a whole". The value of beta that can be estimated for the portfolio constructed by Jason is estimated as,

"Beta = (Fund return – Risk-free rate) ÷ (Benchmark return – Risk-free rate)"

Beta = (0.4- 0.000275) / (0.18 - 0.000275) = 2.22

d) Description of “returns of Jason’s managed funds as Alpha or Beta”

Alpha is considered to be the measurement of excess returns whereas beta can be utilised for measuring the projected volatilities and risk within the assets. Based on the suggestions of Jacobs and Levy (2019), both "alpha and beta" are different parts contained within the equations which can be utilised for explaining performances projected by the stocks along with investment funds. For Jason's portfolio, the 5.98% generated is assigned as Alpha whereas 2.22 are assigned as the beta. 5.98% is the portfolio's returns which are the reason it is assigned to be alpha and 2.22 is the calculated risk which is why it is assigned as beta.


  • Ainia, N.S.N. and Lutfi, L., 2019. The influence of risk perception, risk tolerance, overconfidence, and loss aversion towards investment decision making. Journal of Economics, Business, & Accountancy Ventura, 21(3), pp.401-413.
  • Alessandrini, F. and Jondeau, E., 2019. ESG investing: From sin stocks to smart beta (No. 19-16). Geneva: Swiss Finance Institute.
  • (2023), Superannuation and retirement incomes. Available at:'three%2Dpillar,compulsory%20superannuation%20savings%2C%20and [Accessed on 17.05.23]
  • Bondarenko, S., Shlafman, N., Kuprina, N., Kalaman, O., Moravska, O. and Tsurkan, N., 2021. Planning, accounting and control as risk management tools for small business investment projects. Emerging Science Journal, 5(5), pp.650-666.
  • Drei, A., Le Guenedal, T., Lepetit, F., Mortier, V., Roncalli, T. and Sekine, T., 2019. ESG investing in recent years: New insights from old challenges. Available at SSRN 3683469.
  • Infrontanalytics (2023), Levered/Unlevered Beta of National Australia Bank Limited ( NAB | AUS). Available at: [Accessed on 17.05.23]
  • Jacobs, P.D. and Levy, K.N., 2019. Smart beta versus smart alpha. SSRN.
  • Jeenas, P., 2019. Firm balance sheet liquidity, monetary policy shocks, and investment dynamics. Work, 5.
  • Linkedin (2022), Risk Appetite: What Young And Old Investors Are Doing. Available at: [Accessed on 17.05.23]
  • Zhang, Z., Zohren, S. and Roberts, S., 2020. Deep learning for portfolio optimization. arXiv preprint arXiv:2005.13665.
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