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INV4801 ASSIGNMENT 1 - 2024 (301901)

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  • Course
  • INVESTMENT MANAGEMENT (INV4801)
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  • University Of South Africa (Unisa)
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  • Investment Management

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 approac...

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  • May 31, 2024
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INV4801
ASSIGNMENT 1
DUE DATE: 31 MAY




2024


"Elevate Your Excellence: Where Distinction Meets Assurance in Every Assignment!"

, INV4801 ASSIGNMENT 01: 2024
UNIQUE NO: 301901
DUE DATE: 31 MAY 2024




©
1

, QUESTION 1.


a) Formulate MAF’s return objective for next year. Show your calculations. (4)

1. Real Return Goal: The board's goal is to increase the endowment value by a rate
exceeding inflation (6%) to maintain purchasing power. So, the minimum acceptable
real return goal is 6% + inflation rate.

2. Distribution Goal: The board also intends to make annual distributions equal to 6.5%
of the average asset market value. However, this distribution uses some of the
principal amount, not just investment returns.

3. Total Return Objective: To achieve both goals (maintain purchasing power and make
distributions), we need to combine the real return goal and the distribution rate.
Here's the formula:


Total Return Objective = Real Return Goal + Distribution Rate

Total Return Objective = (6% inflation) + 6.5% = 12.5%

Therefore, MAF's return objective for next year should be 12.5%. This ensures the
endowment maintains its purchasing power while allowing for the planned distributions.




©
2

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