Reference no: EM133057076

QUESTION 1: The following tables give the performance and correlation matrix for property, shares and bonds:

	Property	Shares	Bonds
Average annual return	8.5%	11.6%	2.5%
Annual risk	7.0%	20.4%	2.8%
	Property	Shares	Bonds
Property	1.00
Shares	0.14	1.00
Bonds	-0.24	-0.12	1.00

1. Calculate the portfolio return and portfolio risk for the following mixed-asset portfolios:
2. Portfolio 1: 10% property / 70% shares / 20% bonds
3. Portfolio 2: 20% property / 65% shares / 15% bonds
4. Based on the portfolio return and portfolio risk calculated in (a), assess the risk-adjusted performance for Portfolio 1 and Portfolio 2 using the following measures:
5. Risk-to-return ratio
6. Return-to-risk ratio
7. Sharpe ratio, if the risk-free asset has an average annual return of 1.3%
8. Based on the analysis in (b), how has the change in property allocation impacted the portfolios' risk-adjusted performance?

QUESTION 2: The following table gives the forecast DPUs (in cents per share) for two REITs, ABC and 123, over 2020-2025.

	2020	2021	2022	2023	2024	2025
ABC REIT	13.2	14.1	16.2	17.6	18.8	18.9
123 REIT	14.5	16.2	16.7	18.5	18.6	19.3

1. The beta values for ABC and 123 REITs are 0.76 and 1.12 respectively. Calculate the discount rate for both REITs using the average return of market benchmark at 7.35% and risk-free investment at 0.87%.
2. Based on the discount rate calculated in (a) and by assuming the terminal capitalisation rate is at 1% lower than the discount rate, determine the fair value for both REITs in 2020.

QUESTION 3: A superannuation fund has an additional $700 million to invest in property. They currently have $50 billion in total assets under management, with 5% invested in property.

1. Outline the key issues that you would consider in advising on this additional property investment portfolio. Give specific details rather than general details.
2. Identify and justify the property portfolio that you would recommend to this superannuation fund.

QUESTION 4: Many large institutional investors are now seeking property exposure via direct property rather than via unlistedproperty funds. Discuss the reasons and implications of this change in property strategy. Your answer should be comprehensive and cover specific aspects and examples.

QUESTION 5: Despite having strong investment attributes such as superior risk-adjusted performance and strong diversification benefits, property represents less than 10% in institutional investor portfolios on average. Discuss the reasons behind this conservative allocation in property amongst institutional investors.