Investment Planning for Peter and Brian
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Questions and Answers

What is the minimum amount required to be held in the JSE Trustees account?

  • R350,000.00
  • R300,000.00
  • R250,000.00
  • R280,000.00 (correct)

Which asset classes must hold a minimum of 10% of the portfolio's value?

  • Bonds, Satrix ETFs, and cash
  • Preference shares, Bonds, and real estate
  • Bonds, Satrix ETFs, and JSE Trustees account (correct)
  • Satrix ETFs, foreign accounts, and cash

What is the brokerage charge for Satrix ETFs transactions?

  • 1.5%
  • 0.45% (correct)
  • 0.50%
  • 0.40%

How is the portfolio management fee calculated?

<p>1.5% of the gross portfolio value (A)</p> Signup and view all the answers

Which of the following is excluded from brokerage charges?

<p>JSE Trustees deposits and withdrawals (C)</p> Signup and view all the answers

What is the effect of the portfolio management fee on the portfolio?

<p>It is deducted before the portfolio's value is determined (C)</p> Signup and view all the answers

What must be ignored when selling assets in the portfolio?

<p>Capital gains tax implications (B)</p> Signup and view all the answers

Which investment types are allowed in the portfolio according to the guidelines?

<p>Only securities listed in the 'Allowed Securities List' (C)</p> Signup and view all the answers

What is a potential advantage of actively managed portfolios?

<p>Ability to take advantage of market inefficiencies (A)</p> Signup and view all the answers

Which of the following is a characteristic of a passive investment strategy?

<p>Performance closely matching market indexes (D)</p> Signup and view all the answers

What is a disadvantage of active investment management?

<p>Potentially lower returns in certain market conditions (D)</p> Signup and view all the answers

What is one of the benefits of using passive funds for a smaller portfolio?

<p>Achievement of optimum diversification (D)</p> Signup and view all the answers

Which of the following strategies is NOT typically associated with passive investment?

<p>Frequent rebalancing of investments (D)</p> Signup and view all the answers

What is a drawback of passive investment strategies?

<p>Inability to capitalize on market trends (D)</p> Signup and view all the answers

How can actively managed portfolios be more tax efficient?

<p>Through careful trading and hedging to minimize gains (C)</p> Signup and view all the answers

Which outcome is generally associated with the performance of passive portfolios?

<p>Direct correlation to the performance of selected market indices (B)</p> Signup and view all the answers

What is a potential disadvantage of an active investment strategy compared to a passive one?

<p>Higher associated costs (D)</p> Signup and view all the answers

Why might an active investment strategy experience a higher tracking error?

<p>Higher management involvement (C)</p> Signup and view all the answers

What is a characteristic of passive investment management?

<p>Less frequent trading activity (B)</p> Signup and view all the answers

How do trading costs in an active investment strategy generally compare to those in passive strategies?

<p>Active strategies have higher trading costs (C)</p> Signup and view all the answers

Which is a notable tax consideration for active investment strategies?

<p>Fewer tax advantages due to trading frequency (C)</p> Signup and view all the answers

What is one impact of intensive management on active investment strategies?

<p>Potentially lower performance than the market index (B)</p> Signup and view all the answers

What is a consequence of attempting to replicate the market index in both active and passive strategies?

<p>Substantial costs involved in active strategies (C)</p> Signup and view all the answers

What might limit the effectiveness of downside protection in passive investment management strategies?

<p>Lack of frequent adjustments (C)</p> Signup and view all the answers

What is the total amount of taxes paid on the portfolio earnings in Rands?

<p>R 242 592,13 (A)</p> Signup and view all the answers

What is the pre-tax return on the portfolio as a percentage?

<p>5,90% (A)</p> Signup and view all the answers

Which components are included in the total charges when setting up the portfolio?

<p>Brokerage, VAT, and STT (D)</p> Signup and view all the answers

How is the total trading cost calculated?

<p>Net Value after costs subtracted from Portfolio Investment Value (B)</p> Signup and view all the answers

What is the after-tax return on the portfolio as a percentage?

<p>It is not provided. (D)</p> Signup and view all the answers

Which type of risk is inherent to the entire market and cannot be completely avoided?

<p>Systematic risk (B)</p> Signup and view all the answers

What is the main characteristic of unsystematic risk?

<p>It is specific to a company or industry. (B)</p> Signup and view all the answers

What value is obtained after subtracting total trading costs from the portfolio investment value?

<p>Net Value after costs (A)</p> Signup and view all the answers

In which step of the portfolio process do you establish investment objectives?

<p>Step 2: Establish Investment Objectives (D)</p> Signup and view all the answers

Which calculation will determine the after-tax rand return per line item?

<p>Using the 'After-tax Return' information on the Investment Yield Spread Sheet (A)</p> Signup and view all the answers

What financial metric indicates the earnings prior to tax deductions in Rands?

<p>Pre Tax Return (D)</p> Signup and view all the answers

What is the purpose of the final step in the portfolio management process?

<p>To monitor and measure portfolio performance (D)</p> Signup and view all the answers

Which of the following is NOT involved in the portfolio management process?

<p>Public relations management (D)</p> Signup and view all the answers

How often should an investor review their portfolio plan according to the management process?

<p>Annually (C)</p> Signup and view all the answers

What can help investors reduce their exposure to unsystematic risk?

<p>Diversification of investments (A)</p> Signup and view all the answers

What is the primary focus of systematic risk?

<p>Overall market trends (D)</p> Signup and view all the answers

How much IMP does Mr Stork currently hold in total?

<p>20,000 IMP (C)</p> Signup and view all the answers

What is the net gain per share after accounting for costs?

<p>117.95 (B)</p> Signup and view all the answers

What is the total cost per share including brokerage and taxes?

<p>0.568896 (C)</p> Signup and view all the answers

How many IMP shares must be sold to achieve the limit all-in value?

<p>14,413 (D)</p> Signup and view all the answers

What is the limit all-in value specified for the purchase?

<p>1,700,000.00 (A)</p> Signup and view all the answers

What total value is derived from selling 15,000 IMP shares?

<p>1,769,267 (C)</p> Signup and view all the answers

What is the brokerage fee charged per share?

<p>0.23704 (B)</p> Signup and view all the answers

What is the expected face value of the R186 that can be purchased?

<p>1,700,000 (D)</p> Signup and view all the answers

Flashcards

Annual Escalation

The 7.5% increase in payments each year.

Emergency Fund

R280,000 saved for emergencies.

Portfolio Asset Allocation

At least 10% investment in Bonds, Satrix ETFs & JSE Trustee.

Portfolio Growth Investments

Remaining portfolio funds can invest in growth assets.

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Brokerage Charges

Transaction-based charges (0.45%, 0.40%, 0.50% for various assets).

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Collective Investment Scheme

Units bought/sold based on the net price.

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Portfolio Management Fee

1.5% of the portfolio value, charged annually.

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Allowed Securities List

Only these securities can be bought.

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Active Investment Strategy

An investment strategy that attempts to outperform a market index by actively managing a portfolio.

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Passive Investment Strategy

An investment strategy that seeks to replicate a market index, often through an exchange-traded fund (ETF) or index fund.

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Tracking Error

The difference between the return of an actively managed portfolio and a benchmark index.

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Portfolio Performance

The overall return generated by a collection of investments.

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Market Index

A statistical measure of the performance of a particular segment of the market.

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Trading Costs

Expenses incurred during the buying and selling of assets.

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Tax Advantages

Benefits from tax deductions or exemptions related to investment decisions.

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Downside Protection

The ability of an investment to limit losses during a negative market trend.

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Actively Managed Portfolio

A portfolio constructed using individual stocks and bonds, potentially offering unique choices based on expert research and the ability to exploit market inefficiencies.

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Passive Portfolio

A portfolio built with index funds representing various asset classes, aiming for market performance, often with lower fees and potentially better tax efficiency.

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Active Investment Strategy Pros

Unique choices based on research, potential to outperform the market, and ability to hedge risk through trading and options, in smaller portfolios.

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Passive Investment Strategy Pros

Linked to market index performance, lower management fees, and potentially better tax efficiency, especially in smaller portfolios.

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Active Investment Strategy Cons

Potentially higher management fees, lack of unique strategies for smaller portfolios, and not necessarily better or worse than market performance.

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Passive Investment Strategy Cons

Performance tied to market indexes, limited opportunity to actively adjust or make special investments to maximize the result.

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Investment Strategy

A plan for allocating assets to achieve specific financial goals.

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Optimum Diversification

A strategy of investing in a variety of assets to lessen risk and improve returns across various markets; portfolio balancing.

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After-tax portfolio return (rand)

The return on the portfolio after deducting taxes.

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Total Portfolio Charges

Brokerage fees, VAT, and STT during portfolio setup.

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Tax on Portfolio Earnings (rand)

Amount paid in taxes from portfolio income.

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Pre-tax Portfolio Return (%)

Portfolio return before any taxes are applied, expressed as a percentage.

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After-tax Portfolio Return (%)

Portfolio return calculated after taxes, expressed as a percentage.

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Investment Yield Spread Sheet

Spreadsheet used to track portfolio investment returns.

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Portfolio Investment Value - Net after trading cost

The value of a portfolio remaining after subtracting all transaction costs.

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Total Trading Costs (rand)

The sum of all expenses to make investments.

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Systematic Risk

Risk affecting the whole market or market segment.

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Unsystematic Risk

Risk specific to a company or industry, not the entire market.

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Portfolio Process Step 1

Assess current investor situation and goals.

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Portfolio Process Step 2

Identify investor's risk tolerance and return expectations.

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Portfolio Process Step 3

Develop asset allocation strategy based on objectives.

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Portfolio Process Step 4

Select specific investment options for each asset class.

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Portfolio Process Step 5

Monitor portfolio performance, rebalance to maintain allocation.

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Portfolio Management Review

Regular evaluation of investment plan relative to investor's needs.

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IMP Share Calculation

Calculating the number of IMP shares needed to purchase R186 with a budget constraint.

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All-in Value

The total cost of an investment, including brokerage and other charges.

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Scrip Lending Agreement

A temporary loan agreement for shares.

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Purchase Limit

Constraints on the maximum amount of purchasable assets (e.g: R186).

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Brokerage Charges

Fees charged by a broker for executing trades.

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Net Gain per share

The profit remaining after deducting brokerage and other fees from the share price.

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Number of IMP Shares

The quantity of IMP shares needed for purchase, considering all costs.

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Face Value of R186

The initial (unadjusted) value required that is to be purchased.

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Study Notes

Question 1

  • A new client, Peter Ndlovu, a legal advisor at the South African Reserve Bank (SARB), and his spouse, Brian Edwards, a wedding caterer, need investment advice.
  • Their existing assets include Brian's house (with an outstanding bond) and Peter's house (with an outstanding bond).
  • A sale of the house is to be finalised, and the net proceeds will be used for the new portfolio.
  • Additional funds from their savings account and a 50% share in a private company will be included.
  • The portfolio is to provide for their daughter's school fees (R18,000 per month, with a 7.5% annual escalation) and home expenses (R12,500 per month).
  • An emergency fund of R280,000 should be held in a JSE Trustee account.
  • The portfolio's on-shore investments will comprise at least 10% allocated to bonds, Satrix ETF's, and JSE Trustees for each class.
  • Brokerage charges for the portfolio are based on the gross transaction value, including taxes, at 0.45% for Satrix ETF's, 0.40% for preference/ordinary shares, and 0.50% for bonds.
  • All securities not included in the "Allowed Securities List" must be sold.

Question 2

  • Mr. Stork wants to purchase an R186 bond for an all-in amount of R2,000,000 to be purchased by the close of business on September 22, 2020.
  • Implal Platinum stock will be sold to fund the purchase.
  • Brokerage is 20 basis points on both equity and bond transactions with a minimum of R150 per transaction.
  • STT and VAT must also be added.

Question 3

  • Determine the face value of the R186 bond that Mr. Stork will be able to buy.
  • The all-in value of the R186 bond is R1.7 million, with brokerage of 20 basis points per R100 face value, and VAT of 15% on brokerage, and STT at 0.25% added to the price.

Question 4

  • Determine the coupon payment value in Rands for the bond payable in the year 2020.
  • The R186 bond has a 10.5% coupon payable twice per annum.

Question 5

  • A client wants to buy shares, but needs a target price based on an expected market return.
  • There is a 21% probability the economy will stagnate, with a 6% expected rate of return; a 15% probability of strong growth with a 20% expected rate; 35% probability of moderate growth with 15% as the rate; and 29% probability of a contract with 2.9% as the predicted rate of return.
  • Calculate the expected rate of return for the market.

Question 6

  • A client has a portfolio with 10,000 shares in AngloGold Ltd at R462.94 per share.
  • The client has invested in OTC puts and calls.
  • Calculate how the value of the put and call options will change if the share price falls by R50 per share.

Question 7

  • Determine the market capitalisation for ABG and SBK as at September 21, 2020.

Question 8

  • Calculate the value of a portfolio with 100,000 shares in each company on September 21, 2020.

Question 9

  • Determine the market capitalisation for ABG and SBK as at August 31, 2021, given the share prices changed on August 31, 2021.

Question 10

  • Determine the value of a portfolio with 100,000 shares in each company on August 31, 2021.

Question 11

  • Calculate the percentage change in the price weighted average index of the two equities from September 21, 2020 to August 31, 2021.

Question 12

  • Calculate the percentage increase/decrease in the portfolio values from Questions 8 & 10.

Question 13

  • Discuss the answers to Questions 11 and 12.

Question 14

  • Determine the intrinsic value of Aspen Pharmacare Ltd's (APN) share price.
  • Use the dividend growth model and relevant information.

Question 15

  • Calculate the expected intrinsic value of APN's share price one year into the future.

Question 16

  • Provide a detailed account of a transaction from purchase to sale for Mr. Bilbo Baggins' 1,000 Anglo American shares bought at the reported price listed on 21 September 2020 then sold on February 21, 2021, after receiving an income dividend.

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Description

This quiz focuses on the investment planning needs of Peter Ndlovu and Brian Edwards, considering their current assets and future financial obligations. The scenario involves creating a diversified investment portfolio to fund their daughter's education and home expenses while maintaining emergency funds.

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