Assignment o Write a report which addresses the questions (a to f) below. Where relevant, base your analysis on the data provided. Table 1: Asset returns on different asset classes over the period 1990 to 2010 Year Australian Shares % return (ex dividends) Australian Bonds % return International Shares % return Brent oil (USD) per barrel % return Gold (USD) Troy ounce % return 1990 -20.1% 12.1% -18.7% 34.7% -3.1% 1991 22.2% 9.4% 16.0% -37.4% -8.6% 1992 -6.0% 8.9% -7.1% 0.6% -5.7% 1993 39.1% 6.7% 20.4% -26.2% 17.7% 1994 -9.2% 10.0% 3.4% 23.1% -2.2% 1995 16.5% 8.2% 18.7% 14.9% 1.0% 1996 7.2% 7.4% 11.7% 28.2% -4.6% 1997 7.9% 6.1% 14.2% -33.6% -21.4% 1998 7.7% 5.0% 22.8% -33.5% -0.8% 1999 13.5% 7.0% 23.6% 136.5% 0.9% 2000 2.9% 5.5% -14.1% -9.4% -5.4% 2001 2.6% 6.0% -17.8% -14.3% 0.7% 2002 -9.6% 5.2% -21.1% 55.7% 25.6% 2003 8.7% 5.6% 30.8% 0.6% 19.9% 2004 22.8% 5.3% 12.8% 33.3% 4.6% 2005 15.7% 5.2% 7.6% 44.5% 17.8% 2006 19.8% 5.9% 18.0% 1.1% 23.2% 2007 17.9% 6.3% 7.1% 58.9% 31.9% 2008 -45.8% 4.0% -42.1% -61.8% 4.3% 2009 34.1% 5.7% 27.0% 117.5% 25.0% 2010 2.2% 5.5% 9.6% 19.7% 29.2% Source: Brailsford et al. 2012; RBA 2016; MSCI World index 2016; gold USD per Troy ounce http://www.gold.org/research/download-the-gold-price-since-1978 (viewed on 11/11/2016); Europe Brent spot price FOB in dollars per barrel https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=rbrte&f=D (viewed on 23/11/2016). a..Briefly discuss the five asset classes in Table 1. Using the data from Table 1, calculate the Arithmetic Mean (AM), Geometric Mean (GM) and Standard Deviation (σ) of returns of each of the five asset classes. Briefly discuss the risk-return characteristics of each asset class with reference to these measures. b. Construct an efficient portfolio. Assume the risk free rate over the period is 6.4%. Calculate the Efficient Frontier and Capital Allocation Line (CAL) for the five asset classes using the Excel Solver Tool (see prescribed Textbook Chapter 7, Appendix A for guidance). You will also need to calculate and provide ‘Bordered Covariance’ and ‘Correlation Matrices’. Discuss the implications of these five assets on efficient frontier and CAL. c. Briefly explain how fiscal and monetary policy can influence an economy. Discuss the three main factors that determine how sensitive a firm’s earnings are to the business cycle. d. Using the Black-Scholes formula and the cumulative normal distribution (i.e. see Table 21.2, p. 740 of the prescribed textbook), compute the call and put option prices using the data from Table 2. Table 2: Option information Stock price, S0 38 Exercise price, X 34 Interest rate, r 0.051 (5.1% per year) Time to expiration, T 0.5 (6 months or half a year) Standard deviation, σ 0.25 ( 25% per year) First compute d1 and d2, then using Table 21.2 in the textbook, find the N(d)’s and use interpolation if needed to find the exact call and put prices. e. Assume the current futures price for gold for delivery 10 days from 8 February is US$1,259.50 per ounce. Suppose that from 9 February 2017 to 22 February 2017 the gold prices were as in Table 3. Assume one futures contract consists of 100 ounces of gold. Also, assume the maintenance margin is 5% and the initial margin is 10%. Calculate the daily mark-to-market settlements for each contract held by the long position. Briefly discuss basis risk (i.e. you can give an example if it makes it easier to discuss) [Hint: see Chapter 22 and examples 22.1 and 22.2 of the textbook]. Table 3: Gold prices in US Dollars per ounce Day Futures Price (US Dollar per ounce) 8 Feb 2017 1,259.50 9 Feb 2017 1,253.50 10 Feb 2017 1,256.50 11 Feb 2017 1,261.10 12 Feb 2017 1,251.80 15 Feb 2017 1,254.80 16 Feb 2017 1,258.20 17 Feb 2017 1,269.10 18 Feb 2017 1,271.70 19 Feb 2017 1,266.10 22 Feb 2017 (delivery) 1,265.60 f. Evaluate a fund’s portfolio performance in terms of the market (e.g. outperformance or underperformance) using the Sharpe ratio, Treynor measure, Jensen’s alpha, and Information ratio using data from Table 4. Assume the risk-free rate is 5.3%. Briefly discuss each of the four measures plus the Morningstar risk-adjusted return model. Table 4: Portfolio performance data Fund Portfolio Market Average return, x̄ 11% 8% Beta, β 1.10 1.0 Standard deviation, σ 31% 25% Tracking error (nonsystematic risk), σ(e) 13% 0  This assessment is an individual assessment (ie this is not a group assessment). Please ensure you avoid collusion and other practices which compromise individual assessment wok o ________________________________________ Important Assignment Instructions The required word length for this assignment is 2250 words (plus or minus 10%). • Your assignment will be marked according to the criteria outlined in the assessment grading criteria (see Appendix 1). • In terms of structure, presentation and style you are normally required to use: o standard report format; and preferred Microsoft Word settings; and o author-date style referencing (which includes in-text citations plus a reference list). These requirements are detailed in the AIB Style Guide. • Reference lists for AIB assignments / projects normally contain the following number of relevant references from different sources: 6-12 (for MBA assignments). • All references must be from credible sources such as books, industry related journals, magazines, company documents and recent academic articles. Current Status: Not Submitted Subject: Investment Management [721INMT] With online submission of your assignment, this means that you no longer need to include a cover sheet. However, all assignments (including Final Projects) must still include a title page, as outlined with the Style and Assignment guides including: • your name • student ID number • subject title • AQF level • Word