Sensitivity analysis is a financial tool that helps to identify the interdependency of different variables and determines the change in variable on any changes in other. This financial model is helpful to take many decisions. The major use of the model is within real estate business, share market, banking business, etc. (Source – Sensitivity Analysis, Investopedia,2020)
Looking to the support that Alex receives from parents and available information, following assumptions are considered.
Accordingly following results can be derived,
Age of depletion with given assumptions:
Age of depletion in different scenarios
Accordingly, following conclusion can be derived,
Sr. No. |
Scenarios |
Variables Considered |
Outcome |
Remarks |
1 |
Original |
- Property value $ 1 million - Inflation rate 2% - Growth 4.5% - Human age 90 - GST 10% - Return on investment 5% -Cash Saving Rate -1.5% - Expenses $80,000 |
Negative cash flow, |
The investment is not sufficient to meet the expenses. Accordingly, not recommended |
2 |
Scenario one |
- Human life 85 - growth rate 3%, - inflation rate 1.5%, - property value $ 1.9 million |
Positive cash flow and easy survival |
Recommended |
3 |
Scenario two |
- GST rate 12% - growth rate 2% - return on Investment 6% -parents Life 75 - property value $1.5 millions |
Negative cash flow, |
The investment is not sufficient to meet the expenses. Accordingly, not recommended |
4 |
Scenario three |
- Inflation rate 2.5% - cash saving 2% - Human life 80 - growth rate 3% - property value $2.5 million. |
Positive cash flow and easy survival |
Recommended |
Mutual fund investments are an easy, safe and transparent investment option for risk takers. The critical task associated with this investment is to choose the right mutual funds. The risk associated within the investment depends on the type of investment chosen like single asset managed fund or multi-sector assets managed funds (Source- Choosing a managed fund). The growth of the mutual fund depends on its Net Asset Value and reinvestment made (Source - How to Calculate Mutual Fund Returns by Manivel,2018)
Presently Alex wants to sell the house property and invest the same within mutual funds. To calculate the feasibility of the decision following assumptions are considered,
Value of property/ Mutual funds $1000000
Rental Return 5%
Growth rate of property 4.50%
Reinvestment in Mutual funds 10%
Dividend payout of MF Varying from 0% to 10%
Standard Deviation 6%
Mean 8%
Considering above following analysis were conducted.
Summarizing the analysis, following can be concluded
Sr. No. |
Scenarios |
Outcome |
Remarks |
1 |
Age 85, Dividend payout 5%. |
Negative cash flow, Higher market value |
The yearly cash flow may not be sufficient for meeting expenses but market value at the end of the 85th year is higher |
2 |
Age 90, Dividend payout 8% |
Positive cash flow and easy survival |
Highly recommended and good option for investment opportunity |
3 |
Age 95, Dividend payout varying 0% to 10% |
Negative cash flow, |
Recommended only when the growth rate is around mean or higher of the same |
References Task-1
Will Kenton, (2020, May 28), “Sensitivity Analysis” published on Investopedia available at (https://www.investopedia.com/terms/s/sensitivityanalysis.asp#:~:text=Sensitivity%20analysis%20is%20a%20financial,a%20certain%20range%20of%20variables.)
The health of Australia’s males – AIHW web report, 2019 available at (https://www.aihw.gov.au/reports/men-women/male-health/contents/how-healthy/life-expectancy-and-mortality)
Savings Accounts up to 3.50% by Sally Tindall (2019, October 19) published on Rate city available at (https://www.ratecity.com.au/savings-accounts)
References Task- 2
Choosing a managed fund published on moneysmart.gov.au available at (https://moneysmart.gov.au/managed-funds-and-etfs/choosing-a-managed-fund)
How to Calculate Mutual Fund Returns by Manivel,2018 published on Holistic investment planner available at (https://www.holisticinvestment.in/how-to-calculate-mutual-fund-returns/#:~:text=i.e.%20%5B(25%2F15)%5E,the%20end%20of%20two%20years.)
Measuring Mutual Fund Risk with topic investments available at HDFC Mutual Fund (https://www.hdfcfund.com/learn/advanced/investments/measuring-mutual-fund-risk)
Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Business Analytics Assignment Help
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