A. Classify the following organizations as sole proprietorship, partnership, and companies.
• A pizza business run by John as the only owner
• A grocery business owned by John and his friend with each of them contributing $20k into the business
• An organization for which shares are traded on the ASX
B. Discuss the relative advantages and disadvantages of partnership and companies.
[1.5 + 2.5 = 4 marks]
How many years will it take for an investment of $10,000 now to grow to $20,000, where the rate of interest for the investment is 8% p.a. and compounding is quarterly? [4 marks]
Please note the Yahoo!7 Finance web address: https://au.finance.yahoo.com
From the web site, you may lookup historical prices of shares, further to other information, for companies listed in several stock exchanges, including the Australian Securities Exchange (ASX). You may search for the information by company name or by symbol. For instance, if you type BHP.AX within the textbox beside the “Look Up” button and then left-click/tap/press the “Look Up” button, you will be presented with information involving BHP Billiton Ltd’s share. Similarly, if you look for CBA.AX, you will be presented with information involving Commonwealth Bank of Australia’s share. You may also lookup historical prices by clicking/tapping on the relevant link on the left-side of the web page, and searching by specifying start and end date. You may further receive information regarding dividends paid within particular periods, by selecting “Dividends only” in the historical price search page.
With the above instructions, please note the closing prices for both BHP Billiton Ltd and Commonwealth Bank of Australia on 30 Jan 2015 and 29 Jan 2016. Also, please note the dividends paid for each of the companies within the period.
Assume that an investor has purchased one unit of BHP Billiton Ltd’s share and one unit of Commonwealth Bank of Australia’s share on 30 Jan 2015 at that date’s respective closing prices (as indicated within the column entitled “Close” on Yahoo!7 Finance web site).
Also, assume that the investor has sold both of these shares on 29 Jan 2016 at that date’s respective closing prices.
(a) With these information, for each of the companies’ shares, calculate the investor’s holding period returns? [2 marks]
(b) Do you believe that the holding period returns that you have calculated in Q(a) are also the expected return for these companies’ shares for foreseeable future? Why or why not? [2 marks]
[This is a discussion question and no calculation is involved. Please limit answer to maximum 150 words. In-text citations and references, if used, will not count towards the word limit]