REQUIREMENTS 1 AND 2 according to salary explorer 2022’s website, the average salary for male financial jobs in viet nam is 18,800,000vnd per month

Percentages accounting on expenses of Pre-retirement and Post-retirement... Pie chart displays the percentages accounting on expenses of post-retirement As a single person, after-tax com

BAFI3184: Corporate Finance

Semester 3, 2021

ASSIGNMENT DUE DATE Sunday, 3 April 2022, 23:59 pm rd

Assignment Cover Page

REQUIREMENTS 1 AND 2

According to salary explorer 2022’s website, the average salary for male financial jobs in Viet

Nam is 18,800,000vnd per month However, with 2 to 5 years of experience, the salary is increased by 32% Thus it should be 24,816,000vnd per month Therefore, I would like to choose

this standard to set for my beginning salary for the scenario which is myself at 25 years old with

3 years of experience in the financial industry

Gifts Received (Childrens Tet) li xi - -

Table 1 Incomes of Pre-retirement and Post-retirement

Husb

and

In

rest

Inco

me

Divi de s

Gif

s Re

ceiv

ed (C

hild re

Tet ) li x

i

W e

Net

rent

al in

com e

Tran

er F

rom

Sav

ings

Aver

age

0.00

5,000,000.00

10,000,000.00

15,000,000.00

20,000,000.00

25,000,000.00

30,000,000.00

35,000,000.00

40,000,000.00

Pre and Post - Retirement Incomes

Pre-retirement Post-retirement

Figure 1 Incomes of Pre-retirement and Post-retirement

Pre-retirement Post-retirement Changes

Table 2 Expenses of Pre-retirement and Post-retirement

gs E

xp

se

Hom

Ex

ns

Daily L

ing

Tran sp

tatio

n

Heal th

Insu

nce

Educ at n

Char ity

ifs

Ente rt

nmen t Va tion

SUBS

CRIP

O S

MIS

CELL

ANEO

US

OBL

IGAT

ION

S

Tota l

0

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

Pre and Post - retirement expenses

Pre-retirement Post-retirement

Figure 2 Expenses of Pre-retirement and Post-retirement

Pre-retirement Post-retirement

Table 3 Percentages accounting on expenses of Pre-retirement and Post-retirement

20.20%

15.15%

9.09%

7.07%

4.04% 3.03%

3.03% 2.02%

Pre-ret irement expenses

Savings Expense Daily Living Transportation Home Expenses OBLIGATIONS Entertainment Vacation Health Charity/Gifs Insurance Education MISCELLANEOUS SUBSCRIPTIONS

Figure 3 Pie chart displays the percentages accounting on expenses of Pre-retirement

17.10%

5.03%

7.04%

43.26%

3.02%

5.03%

8.05% 0.30% 0.10%

Post-ret irement expenses

Savings Expense Daily Living Transportation Home Expenses OBLIGATIONS Entertainment Vacation Health Charity/Gifs Insurance Education MISCELLANEOUS SUBSCRIPTIONS

Figure 4 Pie chart displays the percentages accounting on expenses of post-retirement

As a single person, after-tax compensation accounts for 83% percent of my pre-retirement income Rent and interest payments are among the others After retirement, there are different sources of income most are from rental income, dividends and interest

Daily living expenses cost a lot during the pre-retirement and post-retirement stages, with 20 percent and 3 percent, respectively In both periods, saving is encouraged because unforeseen events may occur Education costs are also prohibitively expensive for the advancement of one's life and profession After retirement, however, this keep unchanged

Vacations are limited at a young age because employment consumes all of one's time However, three vacations each year after retirement costs a lot of money Since retiring, I've increased my

giving back to the community by a factor of two Due to the importance of health care and preservation, health-care costs are on the rise The expense of transportation is also highered Other expenses, on the other hand, are mostly have a lot of changes

Monthly expenses in Pre- & Post-retirement periods (VND)

Month Incomes Expenses Replacement Income required

Jan 35.000.000 ₫

150.880.000

₫ 115.880.000 ₫ Feb 35.000.000 ₫

38.715.000

₫ 3.715.000 ₫ Mar 35.000.000 ₫

33.215.000

₫ - 1.785.000 ₫ Apr 35.000.000 ₫

33.760.000

₫ - 1.240.000 ₫ May 35.000.000 ₫

32.565.000

₫ - 2.435.000 ₫ Jun 35.000.000 ₫

36.310.000

₫ 1.310.000 ₫ Jul 35.000.000 ₫

142.288.000

₫ 107.288.000 ₫ Aug 35.000.000 ₫

33.140.000

₫ - 1.860.000 ₫ Sep 35.000.000 ₫

33.063.000

₫ - 1.937.000 ₫ Oct 35.000.000 ₫

33.744.000

₫ - 1.256.000 ₫ Nov 35.000.000 ₫

32.538.000

₫ - 2.462.000 ₫ Dec 35.000.000 ₫

140.582.000

₫ 105.582.000 ₫

Total 420.000.000 ₫

740.800.000

₫ 320.800.000 ₫

Table 4 Post-Retirement Incomes and Expenses Summary

Because post-retirement income is insufficient to cover expenses (Table 4), a monthly

replacement income must be set aside to cover post-retirement expenses:

“Replacement Income required” = Total monthly expenses – income currently

Thus, a 26,733,333 VNDreplacement income must be deposited monthly to sufficiently fund retirement budget plan

REQUIREMENT 3

An annuity-due cash flow is used to collect 26,733,333 VND at the beginning of each month

since the 65th birthday

PV= PMT + PMT x PV= PMT + PMT x 26,733,333 + 26,733,333 x = 2,946,308,849

To reach planned retirement, 2,946,208,839 VND must be accumulated by the 65th birthday

Where:

PMT is the monthly income requirement for post-retirement income (VND/month)

r (%) annual rate of return, compound yearly.

n number of year (80 – 65 = 15)

REQUIREMENT 4

I intended to generate a long-term investment during my pre-retirement years With couple of years of financial experience, an investment yielding an average of 8.95 percent is expected Although extremely undesirable risks are possible, the volatility is manageable in comparison to the broader equities market Additionally, for long-term investments, the profits from successful

periods may somewhat cover losses As a result, my Investor Profile is classified as Moderately Aggressive, according to table 4 and figure 5

Ave Annual Return (%) (2000-2017)

Standard deviation (%) (Measure of risk*)

MODERATIVEL

Y AGRESSIVE

Large Capitalisation

Small Capitalisation

Government Bonds

Table 4 Post-Retirement Incomes and Expenses Summary

WARR = x + x + x + x x + x + x

= 0.45 x 0.0895 + 0.15 x 0.1033 + 0.2 x 0.0813 + 0.05 x 0.062 + 0.05 x 0.04 + 0.05 x 0.007 +

0.05 x 0

= 0.07748 = 7.748%

My long-term investment is predicted to produce a modest 7.748 percent annual Weighted

Average Rate of Return, which will enable me to spend comfortably after retirement

15.00%

20.00%

5.00%

5.00%

5.00% 5.00%

MODERATE AGRESSIVE

Large Capitalisation Common Stocks Small Capitalisation Common Stocks International Common Stocks Corporate Bonds (long-term) Government Bonds (long-term) Treasury Bills (short-term) Cash

Figure 5 Pie chart displays the distribution of investments

PMT =

= = 907,556 VND

Where:

PMT is the monthly contribution required to amass the funds necessary to retire at the age of 65.

(VND/Month)

FV is the money saved from 25th to 65th birthdays to begin spending at 67th birthday, which

equals the calculated cash required at 67th birthday's start (VND)

r (%/year) is the projected rate of return on long-term investments and savings.

n (year) is the total of year from the age 25 to 65 which is 65 – 25 = 40 year.

As a monthly deposit starting on the 25th birthday and continuing until the 65th birthday, an annuity payment of 907,556 VND each month is required to collect sufficient cash to retire at the age of 65

REQUIRMENT 5

Table 5 The association between Annual of return and risk

Risk management is the process of identifying the hazards associated with an investment and then managing them optimally Risk management is critical since it can either mitigate or

increase risk, depending on the investors' and portfolio managers' objectives (H Kent Baker and Greg Filbeck 2015) To compensate for increasing risk, higher rates of return are required In other words, the greater the danger, the greater the reward — and vice versa, the lesser the risk, the lesser the reward (Lumen n/d) The most frequently purchased investment items are stocks, bonds, and mutual funds (Investor.gov n/d)

I would like to divide the investment to different periods which can display more accurate the willing of choice with more suitable scenario of investment’s psychology

I The Beginning (age 25 – 45)

As mentioned in Requirement 4 (R4), with a young experience about 3 years’

experience in the financial industry The ‘Moderate aggressive’ is my optimal choice

due to the capability to suffer through risk However, an expectation of a high return

is strongly existed in a long run investment

Small-cap firms have the potential for rapid growth, which makes them attractive

investments, even though their stocks may be more volatile and therefore represent

more risks to investors (Anna-Louise Jackson, John Schmidt 2021) However, it has a high risk which up to 23.38% but it brings back more than 11% of profit That is why 15% of portfolio is spend for it The largest money of fund is invested in large

capitalization common stocks (LCCS) because even if they are very new, large-cap

corporations are likely to be well established and prominent in their respective

industries This is because some companies go public and instantly achieve a market capitalization of more than $10 billion (Anna-Louise Jackson, John Schmidt 2021) Although, the risk assessment for this task is up to 18.70%, it still be an endurable

investment in long-term with satisfied profit Besides, my 20% of investment fund

would be in the international common stock (ICS) with 16.9% of acceptable risk The 20% others I would like to spread equally to Cash 5%, Government bonds 5%,

Corporate Bonds 5%, Treasury bills % This could help me to have a stable backup which can against inflations, financial crisis (Charles Swab & Co., Inc 2021) WARR

is 7.75% annually is expectedly feasible to spend comfortably on a retirement plan While losses are highly possible, net interest over a long run of time is still beneficial

II The end (46 – 65)

Ave Annual Return (%) (2000-2017)

Standard deviation (%) (Measure of risk*)

Moderative conservation

Large Capitalisation Common

Small Capitalisation Common

Treasury Bills (short-term) 0,70% 0,70% 10%

Table 6 The association between Annual of return and risk

WARR = x + x + x + x x + x + x

= 0.25 x 0.0895 + 0.05 x 0.1033 + 0.1 x 0.0813 + 0.1 x 0.062 + 0.1 x 0.04 + 0.2 x 0.007 + 0.1 x 0

= 0.0506 = 5.06%

In these stages, the portfolio now is shifted to lower risk management, due to the nearer of

retirement Thus, the ‘Moderative conservation’ in this circumstance is the optimal choice The primary advantage of fixed income for investors is the reduced risk and potential for capital loss Fixed income, as comparison to equities, is far more stable and bears fewer risks due to its lower exposure to macroeconomic hazards (e.g., recessions, geopolitical risk) (Wall Street prep n/d) Thus, half of the fund is invested in the fixed income, 20% in the government bonds with 1.8%

of risk, 10% in Corporate Bonds, Treasure Bills, Cash with 7.03%, 0.7%, 0% of risk The 25% of portfolio is spent in Large Capitalisation Common Stocks to gain a sufficient profit with

acceptable risk 17.75% The others 15% are in Small Capitalisation Common Stocks (SCCS) and ICS to expect a well return With 5.06% WARR the profit is not high, but it brings the attitude of comfortable

III Financial crisis

If there is a repetitive event as financial crises before, ‘moderative conservation’ still be a best option to ensure Small-cap equities pose a significant risk to investors during economic

recession Thus, only large-cap equities are purchased, albeit at a 15% discount Another 5% is allocated to overseas equity, with the hope that the international markets are unaffected by local ones The majority of 50% and 30% are allocated to fixed income securities and cash

investments, respectively, due to their long-term low volatility As a result, a WARR of 5.06 percent may be feasible

REQUIREMENT 6

Economic, events and unforeseen political, all have the potential to affect financial markets As a result, an investor's prompt recognition and evaluation of their influence on his or her personal financial plan is critical Although the financial market is difficult to forecast, particularly during times of global crisis, reference effects can be deduced from the past

A Economic – Great regression 2007 - 2009

The Great Recession began in the United States in 2007–08 and quickly spread to other countries The financial crisis, marked by a sharp decline in liquidity in global financial markets, began in 2007 as a result of the collapse of the US housing bubble (Brian Duignan n/d) Banks and other investors in the United States and overseas increased their borrowing in the run-up to the GFC in order to grow their lending and acquire MBS securities Borrowing money to acquire an item raises potential profits but also potential losses (a process known as growing leverage) As a result of their excessive borrowing, banks and investors suffered huge losses as property prices began to collapse (RBA n/d) The investment outcomes could potentially develop with significantly higher returns as a result of the consequences of money-easing policy Additionally, a Moderately

Aggressive, or even an Aggressive Allocation plan with a higher share of equity market exposure may be worth considering for greater success

B Politic – Crisis in Venezuela

Venezuela is amid a political crisis under President Nicolás Maduro's authoritarian administration, who looks to have been consolidating authority over the political

opposition in recent months Venezuela's political dilemma is rooted in an economic disaster (Rebecca M Nelson 2018) Venezuela, with its illogical system of currency controls, is by far Latin America's most dysfunctional economy This year, inflation is predicted to exceed 1600% (Nathaniel Parish Flannery 2017) Individuals and businesses

in Venezuela are unable to exchange foreign money through the conventional exchange market (banks, exchange bureaus, etc.) Rather than that, customers must go through a bureaucratic process at an official institution in which they are instructed to apply for

limited amounts of currency for personal or business needs, with no assurance of success (Yohama Caraballo-Arias, M.D., Jesús Madrid, and Marcial C Barrios 2018)

Due to the substantial reliance on equities and fixed income markets in my portfolio, any political shocks might easily wipe out my investing and saving efforts through significant losses Thus, it is critical for me to immediately acknowledge and revise my investment plan in order to conserve cash and avoid losses, particularly during political situations

Figure 6 Real GDP Growth, International Monetary Fund (2019)

C COVID 19 crisis

Global economic activity has come to a halt as the world takes severe measures to contain the spread of COVID-19, which has wide-ranging ramifications for the

investment management business Globally, aggressive fiscal and monetary policy responses, along with key containment measures, have had a significant economic impact, but liquidity remains limited, and the profit outlook is bleak (Cary Stier 2020)