Hello, if you have any need, please feel free to consult us, this is my wechat: wx91due

BEX3131 S1 2025- ASSIGNMENT

Note: The final submission should be in Word or PDF format. You also need to submit the Excel with formulas for Question 1 and 2. If you cannot submit Excel, please state the steps and formulas you used to work out Question 1 and 2 clearly in the Word or PDF document you submit. If any two submissions from different students are the same, both will get zero points.

Use of ChatGPT or other AI composition software is not permitted.

The extra documents provided to work on this assignment:

Question 1 (35 points)

Find your assigned level of risk tolerance from the following table: your risk tolerance is assigned based on your first name.

You are required to use this risk profile and assets from the Capital Market Assumptions (CMAs) given in Appendix 1 to create your strategic asset allocation (SAA).

You have been assigned an investor profile that describes your risk tolerance. You must answer the following questions based on the risk tolerance level assigned to you. Risk tolerance is defined in terms of the maximum acceptable loss (maximum drawdown) of your portfolio you are comfortable with, as shown in Table 1.

Table 1: Risk tolerance

Table 2: SAA for different investor profiles

a) Based on your allocated risk tolerance from Table 1, choose the fund manager’s portfolio that fits your assigned risk profile. To calculate the maximum drawdown of a portfolio, use this rule of thumb: Maximum drawdown = 3xVolatility. The volatility of the portfolios is provided in Table 2. Please mention your risk tolerance level when youanswer this question. Explain why you selected this portfolio (i.e. how the chosen portfolio is consistent with your risk profile and others are not). (2 points)

Follow these rules while creating your portfolio.

If you are using the ‘two-step breakdown', you need first to allocate the Equity part of your portfolio between DM Equity and EM Equity. Then, in the next step, allocate the DM Equity between AU Equity and DM ex-AU Equity. Similarly, for Fixed Income, in the first step, you first allocate between AU Fixed Income and Global ex-AU Fixed Income. Then, in the second step, allocate within AU-Fixed Income (AU Govt Bonds, AU Corp Bonds and AU Inflation Linked Bonds) and within Global ex-AU Fixed Income (Global ex-AU Govt Bonds and Global ex-AU Corp Bonds). For alternative investments, since there is no more than one breakdown, you can use the ‘one-step breakdown’ results here.

Please show the SAA using either the one-step breakdown or the two-step breakdown. Explain why you prefer the method you used. (2 points)

You need to show the details of the steps, formulas and how you work out the allocations of your SAA. You need to submit Excel files. Please ensure that numbers are linked with each other by formula, not just entering the final calculation outputs in Excel. If you cannot submit Excel, please state the steps and formulas you used to work out the weights clearly in the Word or PDF document you submit. (10 points)

Table 3: SAA

Show your tilted weights in Table 4. (2 points)

e) How would your SAA change if interest rates were expected to drop sharply over the next 12 months? Which asset classes might you reduce exposure to, and which might you favour? Explain your reasoning. (2 points)

f) Behavioural research suggests that investors often chase past performance. How might this behaviour impact the effectiveness of your long-term SAA? What strategies could you implement to counteract this bias? (2 points)

g) Imagine you experienced unexpected financial events (e.g., inheritance, major expense). How would you incorporate this change into your asset allocation? (2 points)

h) Suppose within your equity portfolio, the price of AU Equity increased by 50% and that of DM Equity fell by 50% and the price of EM Equity remained unchanged. How will you rebalance your Global Equity portfolio? (2 points)

Question 2 (10 points)

The maximum acceptable loss of your client is based on the following table:

e) Based on the past performance of Hostplus and Unisuper, which one of these two options would you recommend for your client? Explain your recommendation. (4 points)

Appendix 1: Asset class long-term return and risk assumptions