Valuation of Securities Essay Example | Topics and Well Written Essays - 2250 words

Valuation of Securities - Essay Example500,000, then I have to look at the options available to me and perform a detailed analysis of each. This would allow me to determine which is best considering the risk and return profile of each option. I have made the decision to assess a biography insurance investment option and a fund which I allow manage on my own. other(a) investments which could be considered include bonds, shares and mutual funds. Life redress Investment Investing the amount of ?500,000 saved with a life insurance company may allow me to receive a stable income on an one-year basis with an adjustment for inflation. The insurance policy that my insurance agent recomm eat ups is one that testament pay me an annual sum that allows for an inflation adjustment and allows for the balance to be paid to my estate when I die. This tuition is presented in Table 1. Year Initial Investment/ Balance (?) Interest rate Inflation rate slap-up Growth (?) Withdrawal (?) Balance (?) 0 500,000.00 0.04 0.03 0.00 0.00 500,000.00 1 500,000.00 0.04 0.03 520000.00 15000.00 505000.00 2 505,000.00 0.04 0.03 525200.00 15450.00 509750.00 3 509,750.00 0.04 0.03 530140.00 15913.50 514226.50 4 514,226.50 0.04 0.03 534795.56 16390.91 518404.66 5 518,404.66 0.04 0.03 539140.84 16882.63 522258.21 6 522,258.21 0.04 0.03 543148.54 17389.11 525759.43 7 525,759.43 0.04 0.03 546789.80 17910.78 528879.02 8 528,879.02 0.04 0.03 550034.18 18448.11 531586.07 9 531,586.07 0.04 0.03 552849.51 19001.55 533847.96 10 533,847.96 0.04 0.03 555201.88 19571.60 535630.28 11 535,630.28 0.04 0.03 557055.50 20158.75 536896.75 12 536,896.75 0.04 0.03 558372.62 20763.51 537609.11 13 537,609.11 0.04 0.03 559113.48 21386.41 537727.06 14 537,727.06 0.04 0.03 559236.15 22028.01 537208.14 15 537,208.14 0.04 0.03 558696.47 22688.85 536007.62 16 536,007.62 0.04 0.03 557447.92 23369.51 534078.41 17 534,078.41 0.04 0.03 555441.55 24070.60 531370.95 18 531,370.95 0.04 0.03 552625.79 24792.71 527833.08 19 527,833.08 0.04 0.03 548946.40 25536.50 523409.90 20 523,409.90 0.04 0.03 544346.30 26302.59 518043.71 403055.62 Table 1- Investment in Life Insurance Policy The information in Table 1 indicates that the policy will run for 20 years. It is expect that the interest rate for the period would be 4% and the inflation rate - 3%. An amount of ?15,000 will be paid in the first year after allowing for inflation. If I die at the end of the first year my estate will receive a total of ?505,000. If not the annual payments will increase year after year to an annual payment of ?26,203.59 in the 20th year. At that date the balance on the account would be ?518,043 which would be paid to me or my estate if I die. The information in Table 1 also indicates that the balance on the policy would increase up to the thirteenth year but would start declining thereafter. My total receipts from this policy from year 1 to year 20 would be ?403,055.62 leaving a balance of ?518,043.71. This suggests that afte r 20 years I would have accredited a total of ?921,099.33 (?403,055.62 + ?518043.71). Therefore, I would gain a total of ?421,099.33 on my investment. Manage Funds personally In the event that I choose to personally manage my funds I would want to qualify the risks involved by investing in a mix of government bonds and shares. Government bonds are essentially risk free while investment in shares is considered to be risky. I would want to consider a 5050 mix since I am hoping to get high returns that would be able to