INV4801 ASSIGNMENT 1 - 2024 (301901)

INV4801 ASSIGNMENT 01: 2024 UNIQUE NO: 301901 DUE DATE: 31 MAY 2024 QUESTION 1: a) Formulate MAF’s return objective for next year. Show your calculations. (4) b) Explain why the multiplicative approach to calculating the return objective is more precise than the additive approach in a multi-period set up. (2) c) Within the context of asset allocation, discuss the investment constraints that MAF is facing. Using not more than 5 asset classes, advice on the most appropriate asset allocation for MAF. Justify your allocation. d) Describe the psychological trap that affects Mudawu. (2) e) Discuss behavioral characteristics that Mpofu exhibit in this case. (2) QUESTION 2: a) Given an expected inflation rate of 2.5% and a tax rate of 25% for both Pfende and Manjengwa, what are the minimum before-tax return requirements for both investors? (6) b) Based only on Manjengwa’s risk-adjusted expected returns for the asset allocations and a threshold level of 6%, which asset allocation would Manjengwa prefer? (4) c) Recommend and justify a strategic asset allocation for Manjengwa (6) d) Given the four corner portfolios that Makina developed, calculate the standard deviation of a portfolio that can achieve an expected return of 8.1%. (5) e) Assuming no constraint against leverage, determine the weights that should be invested in the risk-free asset and the tangency portfolio to achieve an expected return of 8.1%. (4)