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Apply Asset Classes

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You have now built the tools in Asset Classes. The next task is to apply them to the supplied fictional case. Start with the objective and constraints. Record your first decision and the evidence supporting it. Work the numbers using consistent definitions and units. Invite the strongest reasonable challenge. When new information arrives, keep your first record and explain what changes. Finish with a conditional conclusion: what you would do, why, what remains uncertain and what evidence would trigger a review. This is a teaching exercise with fictional information. The quality of your reasoning matters more than whether a simulated outcome later looks favourable.

Bring the asset classes together.

Twenty questions: five on claims and measures, five on access and return drivers, five on financing/project calculations, and five on risk and decisions. Target 16/20; use feedback and retry. This native version is self-marked practice.

Check your understanding · choose one

A listed company has 12m shares at £5. Market capitalisation is…

Correct. 12m × £5 = £60m; this is equity value.

Reconsider this choice. 12m × £5 = £60m; this is equity value. Try another answer.

Check your understanding · choose one

A share bought for £20 ends at £21 and pays 50p. Before costs, return is…

Correct. (21−20+0.5)/20 =7.5%.

Reconsider this choice. (21−20+0.5)/20 =7.5%. Try another answer.

Check your understanding · choose one

A bond pays £6 annually on £100 face, trades at £120. Current yield is…

Correct. £6/£120 =5%; coupon rate remains 6%.

Reconsider this choice. £6/£120 =5%; coupon rate remains 6%. Try another answer.

Check your understanding · choose one

A bond pays £6, is bought for £120 and sold a year later for £110. Total return is…

Correct. (110−120+6)/120 ≈−3.33%.

Reconsider this choice. (110−120+6)/120 ≈−3.33%. Try another answer.

Check your understanding · choose one

A buyout exits at £150m enterprise value with £60m debt and zero cash. Equity proceeds are…

Correct. Subtract debt under the stated simple bridge.

Reconsider this choice. Subtract debt under the stated simple bridge. Try another answer.

Check your understanding · choose one

Those £90m equity proceeds on £45m original equity give…

Correct. £90m/£45m =2×, before omitted costs and other flows.

Reconsider this choice. £90m/£45m =2×, before omitted costs and other flows. Try another answer.

Check your understanding · choose one

A £1m property earns £70,000 rent and has £20,000 operating costs. NOI yield on cost is…

Correct. £50,000/£1m =5%, on this limited expense basis.

Reconsider this choice. £50,000/£1m =5%, on this limited expense basis. Try another answer.

Check your understanding · choose one

A vacant property needing major conversion has risk mainly determined by…

Correct. Read the project and capital structure.

Reconsider this choice. Read the project and capital structure. Try another answer.

Check your understanding · choose one

A refinery closure can…

Correct. Identify the stage of the production chain.

Reconsider this choice. Identify the stage of the production chain. Try another answer.

Check your understanding · choose one

A futures-based commodity return can differ from spot because of…

Correct. Implementation changes the return.

Reconsider this choice. Implementation changes the return. Try another answer.

Check your understanding · choose one

A startup raises £3m at £9m pre-money, no other changes. New investors own…

Correct. £3m/(£9m+£3m) =25%.

Reconsider this choice. £3m/(£9m+£3m) =25%. Try another answer.

Check your understanding · choose one

Ten £1m venture positions produce six zeroes, three returning £1m and one returning £9m. Gross MOIC is…

Correct. £12m total proceeds on £10m invested.

Reconsider this choice. £12m total proceeds on £10m invested. Try another answer.

Check your understanding · choose one

A £4m floating loan pays reference 4% plus spread 3%. Annual cash interest is…

Correct. £4m ×7% =£280,000.

Reconsider this choice. £4m ×7% =£280,000. Try another answer.

Check your understanding · choose one

Its reference rate rises 2 percentage points, no other change. Interest rises by…

Correct. £4m ×2% =£80,000 per full year.

Reconsider this choice. £4m ×2% =£80,000 per full year. Try another answer.

Check your understanding · choose one

Usage falls 20% and a tariff rises 10%. Revenue changes by…

Correct. 0.8 ×1.1 =0.88 of original revenue.

Reconsider this choice. 0.8 ×1.1 =0.88 of original revenue. Try another answer.

Check your understanding · choose one

A long-term infrastructure contract still requires checks on…

Correct. The contract’s cash-flow mechanism matters.

Reconsider this choice. The contract’s cash-flow mechanism matters. Try another answer.

Check your understanding · choose one

Short 50 shares at £40, buy back at £30, pay £60 stated costs. Net cash gain is…

Correct. 50×£10−£60 =£440.

Reconsider this choice. 50×£10−£60 =£440. Try another answer.

Check your understanding · choose one

A separately specified performance fee is 20% only above a hard 5% threshold on £1m. Before-fee end value £1.09m gives…

Correct. £1.09m−£1.05m =£40,000; 20% =£8,000.

Reconsider this choice. £1.09m−£1.05m =£40,000; 20% =£8,000. Try another answer.

Check your understanding · choose one

A 3% nominal return with 4% inflation gives exact real return near…

Correct. 1.03/1.04−1 ≈−0.9615%.

Reconsider this choice. 1.03/1.04−1 ≈−0.9615%. Try another answer.

Check your understanding · choose one

A portfolio has a high modelled long-run return but insufficient cash for a committed near-term payment. The strongest response is…

Correct. Return forecasts cannot pay a fixed liability without access to cash.

Reconsider this choice. Return forecasts cannot pay a fixed liability without access to cash. Try another answer.

The investment committee decision

The fictional Harbour Learning Endowment has £10m. It must pay £600,000 at the end of the coming year and meet an existing £300,000 private-fund capital call. A further £200,000 call is possible in stress. Its policy permits no more than 35% in the specified illiquid exposure bucket (private equity, direct property, venture, private credit and private infrastructure), no more than 10% in venture, and no more than 10% in hedge funds. The current allocation is 35% public equities,30% fixed income,5% private equity,5% direct property,5% commodities,5% private infrastructure and15% money markets; other buckets are zero. Existing uncalled commitments total £500,000. This is a teaching mandate, not a real portfolio recommendation.

  • Check the allocation totals and current policy limits.
  • Calculate starting cash resources and cash left after the scheduled grant and call, ignoring returns.
  • Propose and record an allocation totalling 100%; state the purpose of each change.
  • Use the supplied hypothetical scenario table. Calculate the weighted return, end value after the £600,000 grant, and remaining cash after calls; show why a capital call is not automatically a loss of NAV.
  • Prepare a 300–450 word board paper comparing your proposal with the starting allocation, addressing downside, liquidity, fees, evidence, sustainability and what would change your mind.

Marking rubric · 15 marks

  • Mandate and arithmetic (3 marks): Weights reconcile and the stated limits are checked.
  • Liquidity and cash flows (3 marks): Payment timing and capital-call transfers are correctly distinguished.
  • Risk and evidence (3 marks): Uses the scenario assumptions, fees, underlying exposure and missing information.
  • Balanced recommendation (3 marks): Compares alternatives and gives a conditional conclusion with a review trigger.
  • Communication and sustainability (3 marks): Clear board paper with a measurable sustainability mechanism and acknowledged trade-off.
Indicative response after your own attempt

Starting weights sum to100%. The specified illiquid bucket totals15%; venture and hedge funds are0%. Starting money markets are£1.5m. After a£600,000 grant and£300,000 capital call, cash before returns is£600,000; if the additional£200,000 call occurs it is£400,000. A call transfers cash into a fund investment under the teaching assumptions; the grant leaves the endowment. Therefore portfolio value falls by the grant, not automatically by the amount of the call. A proposal must state and check its own weights and limits. Multiple allocations can be defensible; no single set is graded as the optimal answer. Use the supplied scenario returns as hypothetical inputs, not forecasts or evidence of future skill. A strong paper identifies counterarguments, the sources needed for diligence, and review triggers. Full marks do not depend on choosing the highest-return scenario or claiming enthusiasm for a finance career.

Next: Investing Skills

Financial Statements will help you investigate the businesses and cash flows behind these claims. Valuation follows. Keep your allocation record and questions for those modules.