Causes of Conflict in DRC

Causes of Conflict in DRC INVESTIGATING THE CAUSES OF CONFLICT IN DEMOCRATIC REPUBLIC OF CONGO (DRC) Location of the D R Congo Background The Congo is situated at the heart of the west-central portion of sub-Saharan Africa. DR Congo borders the Central African Republic and Sudan on the North; Uganda, Rwanda, and Burundi on the East; Zambia and Angola on the South; the Republic of the Congo on the West; and is separated from Tanzania by Lake Tanganyika on the East. The country enjoys access to the ocean through a 40-kilometre (25 mile) stretch of Atlantic coastline at Muanda and the roughly nine-kilometer wide mouth of the Congo river which opens into the Gulf of Guinea. The country straddles the Equator, with one-third to the North and two-thirds to the South. The size of Congo, 2,345,408square kilometers (905,567sqmi), is slightly greater than the combined areas of Spain, France, Germany, Sweden, and Norway. It is the third largest country (by area) in Africa. In order to distinguish it from the neighboring Republic of the Congo, the Democratic Republic of the Congo is often referred to as DR Congo, DRC, or RDC, or is called Congo-Kinshasa after the capital Kinshasa (in contrast to Congo-Brazzaville for its neighbour). The name Congo refers to the river Congo, also known as the river Zaire. (The river name Congo is related to the name of the Bakongo ethnic group). As many as 250 ethnic groups have been identified and named. The most numerous people are the Kongo, Luba, and Mongo. Although seven hundred local languages and dialects are spoken, the linguistic variety is bridged both by widespread use of French and intermediary languages such as Kongo, Tshiluba, Swahili, and Lingala. The Congo is the worlds largest producer of cobalt ore, and a major producer of copper and industrial diamonds. It has significant deposits of tantalum, which is used in the fabrication of electronic components in computers and mobile phones. In 2002, tin was discovered in the east of the country, but, to date, mining has been on a small scale. Katanga Mining Limited, a London-based company, owns the Luilu Metallurgical Plant, which has a capacity of 175,000 tonnes of copper and 8,000 tonnes of cobalt per year, making it the largest cobalt refinery in the world. After a major rehabilitation program, the company restarted copper production in December 2007 and cobalt production in May 2008. The United Nations 2007 estimated the population at 62.6 million people, having increased rapidly despite the war from 46.7 million in 1997. Currently the Head of State is President Joseph Kabila (October 2006-) and Head of government is Prime Minister Antoine Gizenga (December 2006-). Provinces and territories Formerly the country was divided into eleven provinces, Kinshasa, Province Orientale, Kasaà ¯ Oriental, Kasaà ¯ Occidental, Maniema, Katanga, Sud-Kivu, Nord-Kivu, Bas-Congo, Équateur and Bandundu. However, the constitution approved in 2005 divided the country into 26 fairly autonomous provinces, including the capital, Kinshasa to be formed by 18 February 2009. These are subdivided into 192 territories. Provinces and their Capital Cities Province Capital 1. Kinshasa Kinshasa 2. Kongo central Matadi 3. Kwango Kenge 4. Kwilu Kikwit 5. Mai-Ndombe Inongo 6. Kasaà ¯ Luebo 7. Lulua Kananga 8. Kasaà ¯ oriental Mbuji-Mayi 9. Lomami Kabinda 10. Sankuru Lodja 11. Maniema Kindu 12. Sud-Kivu Bukavu 13. Nord-Kivu Goma Province Capital 14. Ituri Bunia 15. Haut-Uele Isiro 16. Tshopo Kisangani 17. Bas-Uele Buta 18. Nord-Ubangi Gbadolite 19. Mongala Lisala 20. Sud-Ubangi Gemena 21. Équateur Mbandaka 22. Tshuapa Boende 23. Tanganyika Kalemie 24. Haut-Lomami Kamina 25. Lualaba Kolwezi 26. Haut-Katanga Lubumbashi History of the DR Congo Conflict The state of DR Congo emerged from brutal colonial history. From 1880s, Belgian King Leopold II used territory as personal kingdom, exploiting vast natural resources through indigenous forced labour. Leopold transferred control of â€Å"Congo Free State† to Belgian government 1908. After upsurge of nationalist sentiment and parliamentary elections May 1960, Belgium accepted independence June 1960. Within two weeks, country faced nationwide army mutiny and secessionist movements in Katanga and southern Kasai. Cold War interests fuelled tensions, with U.S. fearing Congos break-up and Soviet inroads. Power struggle between President Joseph Kasavubu and PM Patrice Lumumba intensified when Lumumba used army to brutally (but unsuccessfully) suppress Kasaian rebellion and appealed for Soviet support. Kasavubu dismissed Lumumba, who was later arrested and 1961 assassinated with Belgian complicity. UN troops began disarming Katangan rebels August 1961 but situation deteriorated into sporadic conflict between UN and Katangan forces. Head of breakaway Katanga Moise Tshombe forced out 1963, returning as Congos prime minister 1964. Colonel Joseph Desire Mobutu ousted Kasavubu and Tshombe in 1965 and began thirty-two year rule. In 1971-2 he changed the countrys name to Zaire. Mobutu systematically used countrys mineral wealth to consolidate power, co-opt rivals and enrich himself and allies through patronage. Following the end of Cold War, cessation of international aid and internal pressure to democratise pushed him to reinstate multiparty politics in 1991, but Mobutu manipulated agreement to retain power. Mobutu was finally ousted in May 1997 by rebellion under Laurent Kabilas leadership, backed by Rwanda and Uganda. Second war The Second Congo War, also known as Africas World War and the Great War of Africa, began in August 1998 in the Democratic Republic of the Congo (formerly called Zaire), and officially ended in July 2003 when the Transitional Government of the Democratic Republic of the Congo took power (though hostilities continue to this day). The largest war in modern African history, it directly involved eight African nations, as well as about 25armed groups. By 2008 the war and its aftermath had killed 5.4million people, mostly from disease and starvation, making the Second Congo War the deadliest conflict worldwide since World War II. Millions more were displaced from their homes or sought asylum in neighboring countries. War sparked again in August 1998 when Kabila moved to purge Rwandans from government. Rwandan troops backing Congolese Tutsi rebels invaded. Kabila called on Zimbabwe, Angola and Namibia for help. It is estimated that 4 million people died in during this conflict between 1998-2004, mostly from war-related diseases and starvation. A Lusaka ceasefire signed July 1999 and UN Security Council peacekeeping mission (MONUC) was authorised in 2000. Laurent Kabila was assassinated January 2001 and replaced by son Joseph. Peace negotiations resulted in Rwandan and Ugandan withdrawal in late 2002, but proxies remained. In December 2002, all Congolese belligerents and political groups signed peace deal in Sun City, South Africa, ushering in transitional government June 2003 in which Kabila shared power with four vice-presidents. However, conflict in Ituri, North Kivu, South Kivu and Katanga provinces continued. Rebel groups, including former Rwandan-backed Tutsi and Hutu militias (Democratic Forces for the Liberation of Rwanda (FDLR) being largest), continued to fight for land and resources. Violence in north eastern Ituri halted 2003 after three-month French-led emergency mission under EU authority, after UN failed to contain clashes. Deaths and displacements led UN to describe Eastern Congo as â€Å"worlds worst humanitarian crisis† March 2005. Following DRC government request International Criminal Court (ICC) investigate crimes from June 2002 throughout DRC, ICC Prosecutor opened investigation into crimes in Ituri June 2004. Government and MONUC security efforts, undermined by lack of progress in establishing integrated national army, reinvigorated September 2004 by force expansion from 10,800 to 16,700 and more aggressive mandate. From March 2005, MONUC often participated in joint operations with integrated national army. But despite significant demobilisation, many rebel groups still active 2006. Uganda rebel group Lords Resistance Army (LRA) settled in north east late 2005, reigniting tensions: Kampala threatened to pursue LRA into Congo, while Kinshasa suspected Uganda sought access to resources in east. International Court of Justice 2005 found Ugandan army committed human rights abuses and illegally exploited Congolese natural resources. New constitution introducing president/prime minister power sharing and two-term presidential limit was adopted 13 May 2005 and approved by referendum 18 December. After delays, national assembly and first-round presidential elections held 30 July 2006. Violent clashes erupted in Kinshasa between Kabila and opposition MLC leader Jean-Pierre Bemba supporters when neither gained majority in first-round votes. Kabila took presidency in 29 October second round (58 per cent of vote), and his alliance won majority in national and provincial assemblies. Elections considered by outside observers to be relatively free and fair, ushering in first truly democratic government 40 years. Kabila government faces substantial challenges, including an abusive and ill-disciplined national army (FARDC), corrupt public administration, and lack of infrastructure and basic services. Advances in Ituri remain precarious, with slow progress on militia disarmament and reintegration and lack of transparent natural resource management. Security further deteriorated in North Kivu, where the national army and dissidents under command of General Laurent Nkunda (CNDP, National Congress for the Defence of the People Nkundas political movement, unveiled July 2006) resumed fighting from late November 2006, displacing up to 400,000 in years since. Signing of Nairobi Agreement November 2007 and Goma â€Å"Actes dEngagement† January 2008 were welcomed. The Former provided for repatriation of FDLR and latter for ceasefire and voluntary demobilisation of combatants in east, to be implemented through â€Å"Amani† peace program. Success depends on will of militias to disengage, continued funding for the Amani program and improved relations between Kigali and Kinshasa over handling of FDLR. But despite some initial signs of Nkundas readiness to disengage, serious clashes between CNDP and FARDC continued, while June 2008 brought heavy FDLR attacks on civilian camps in North Kivu. Political pluralism has shrunk, with opposition virtually excluded from governorships despite performance in 2006 elections, recurrent use of force against Bembas supporters, and death of over 100 civilians in March 2008 brutal police crackdown on political-cultural movement Bundu dia Kongo in Bas-Congo. The ICC has issued five arrest warrants for DRC leaders and four are in ICC custody three militia leaders charged with crimes in Ituri, and Bemba who was arrested May 2008 for atrocity crimes committed 2002-2003 in neighbouring CARs civil war and transferred to The Hague 4 June 2008. Nkunda resisted hand over of fifth suspect, CNDP chief of staff Bosco Ntaganda, wanted for Ituri crimes. But credibility and future of ICC investigations under question after judges suspended first trial, of UPC militia leader Thomas Lubanga in June 2008 over prosecutions non-disclosure of potentially exculpatory evidence. Recent-Current situation in Congo  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   A deal concluded between Kabila and rebel commander Laurent Nkunda providing for the integration of Nkundas troops into the armed forces known as mixage collapsed in 2007 amid opposition from hardliners on both sides. Kabilas aides attacked him over perceived preferential treatment given to Tutsis in army integration, drawing on public outcry over massive human rights violations caused in Nkundas operations against the FDLR to undermine the deals legitimacy. Nkundas Goma-based Tutsi backers, afraid of losing everything acquired during the war, threatened to pull their support. The mixage process and its collapse left Nkunda militarily strengthened and removed a viable alternative to continued struggle. After frequent clashes in the first half of 2008, violence again engulfed the region from late August, when Nkundas CNDP rebels launched a fresh offensive on army bases and areas under the formal protection of UN troops. After significant advances and the collapse of the FARDC in the region, the CNDP took control of Rutshuru town in late October, moved to the outskirts of the regional capital Goma and consolidated their hold over the surrounding region. For a short time, UN peacekeeping troops (MONUC) found themselves the last protection against Nkundas advances on Goma. A 29 October ceasefire soon faltered, and clashes continued throughout November (2008). Partially due to an intense diplomatic effort, Nkunda put on hold his offensive on the city, while still continuing and consolidating advances in other areas. International and regional diplomatic efforts commenced from late October, 2008. An EU mission led by the French and British foreign ministers arrived in Congo and Rwanda on 31 October, while African leaders joined by UN Secretary General Ban Ki-moon met at an emergency summit of the African Union, calling for immediate adherence to the 29 October ceasefire. The UN Security Councils decision to appoint a special envoy former Nigerian President Olusegun Obasanjo added welcome focus and commitment to mediation. International leaders met in Nairobi on 7 November (2008) and called for the immediate implementation of the Goma and Nairobi agreements, establishing a facilitation team composed of Obasanjo and former Tanzanian President Mkapa. The new mediators met with key players over November, securing Nkundas commitment to a ceasefire in the middle of the month, although clashes erupted again shortly afterwards. In February 2009, Rwanda arrested Nkunda though it has not yet handed him o ver. Recent developments also underscored the fragility of the situation in Ituri. October 2008 saw fresh clashes between government and rebel forces as well as a series of brutal attacks and abductions reportedly by Ugandan Lords Resistance Army rebels. Causes of the Congo conflict Leopold and Belgium colonial occupation Like most African nations, the problems in Congo in the recent past have their tap root in the colonial activities by mainly European nations. The Congo possessed an uncharacteristic wealth that made it the desire of many European countries (Lusignan: 2004). It had an abundance of natural resources such as cooper, gold, diamonds, rubber, cobalt, among others that made it the desire of many trading corporations and companies. At the Berlin Conference in 1885, King Leopold was granted to the exclusive right to privately exploit the Congo.  Ã‚   Once in the Congo, Leopold devised an economic system in which the Congo was sectioned into different areas leased to different European corporations that paid Leopold 50 percent of the extracted wealth. Lusigan (2004) writes that Leopold entered the Congo under the cloak and faà §ade of a humanitarian by making hollow promises detailing his intentions to improve the quality of life in the Congo.   He promised to build schools, homes, and to liberate the Congolese people from Arab slave traders.   But under the rule of Leopold, very little was done to improve the well being of the citizens, and instead a regime was instituted that operated solely through force of might.   People were tortured and forced to sign treaties that according to Leopold â€Å"†¦must grant us everything† (Hochschild 71), which included the rights to all land and resources therein.   Thus for a 20 year period, Leopold was able to operate with impunity, and in the process 10 million people were murdered.  Ã‚   During his reign, women and children were brutally raped and murdered and treated like animals. â€Å"They were fed-and slept-in the royal stables.†(Hochschild 176)   They were even hunted like animals for fun and for sport.   Limb amputation was a joy of many Belgium soldiers; hands, heads, and other body were severed for not only proof of kill, but for the cannibalis tic needs of these Belgium soldier.   Even the homes of some Belgium officers were lined with the skulls of the Congolese people for decoration.  Ã‚   Many more died from starvation and exhaustion resulting from the inhumane living conditions present in the Congo. After King Leopold relinquished his position in the Congo, the Belgium parliament assumed legal control of the country, but the trading corporations and companies of Belgium and other European countries continued to dominate the course of events in the Congo. â€Å"The one major goal not achieved, he (Morel) acknowledged, was African ownership of land.† (Hochschild 273)  Ã‚   The Congos wealth of natural resources had always been the main attraction of Belgium, and with Leopold removed, the corporations were given more control and influence over the economy in the Congo.   The United Mines of Upper Katanga (UMHK) was founded shortly after Leopolds reign ended and for the next fifty years, this corporation exercised the greatest influence and control over the economy and the resources with the Congo.   It â€Å"controlled about 70 percent of the economy of the Belgian Congoand controlled the exploitation of cobalt, copper, tin uranium and zinc in mines which were among t he richest in the world.†( Hochschild 31) During this time period, the Congo was one the worlds largest copper-producing countries and the â€Å"cobalt extraction in Katanga represented 75 percent of the entire world production.† (Hochschild 31) In June of 1960, the Congo was granted independence, which threatened the future of European economic control of this profitable source of revenue. The United Nations granted independence to the Congo because of pressure from the worldwide anti-colonial movement that touched Africa in the 1950s. But shortly after the Congos independence, Belgium immediately sent troops to the country in order to protect Katanga, the city in the Congo that possessed a wealth of resources and was the primary export site for these corporations.  Ã‚   With this military presence, the corporations continued their production in the city, and surprisingly, production even increased in the year of independence.   This military presence remained in the Congo for years, thus showing the Congolese people were never truly granted â€Å"independence†.  Ã‚   The entitlement complex of Belgium is further revealed here because Belgium believed that they possessed personal ownership of the land in the Congo, and that the citizens of the Congo did not warrant independence.   Belgium regarded the citizens of the Congo as an inferior people who lacked civilization; they believed that the occupation was justified. This denial of own land and resources, injustice, brutal acts and all other in human acts by Leopold and the Belgians groomed anger, resentment, feelings of discontent among the citizens of Congo that was later to be manifested in counter resistances and civil wars against any one who seemed to portray similar acts and policies, hence, conflicts in the Congo.  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   The Assassination of Patrice Lumumba The emergence of an independent Congo on June 30, 1960 marked the beginning of a new era of colonialism by the Western powers.   On this day, Patrice Lumumba became Prime Minister of the Congo, and in six months he would be assassinated. He was an extraordinary politician, motivator, and visionary, and one of the most influential figures throughout Africa during his term.   He is now enshrined as an historical figure against the fight of injustice because of his outspokenness against the colonization of Africa by European powers (Lusigan: 2004). Lumumba came to power at a time in which the anti-colonial movement was most intense worldwide; this propelled his general regard as a worldwide leader of this movement. The period â€Å"†¦from 1960 to 1965, was the Wests ultimate attempt to destroy the continents authentic independent development.† (Kanza xxv)  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Before serving as Prime Minister, Lumumba was the president of the National Congolese Movement, a party formally constituted in 1958.   He was an ambitious man and envisioned a promising future for the Congo; a future void of European involvement and one in which the Congolese people had absolute power. He was already a prominent figure in the political scene within the Congo, having amassed a following through his writings and speeches advocating sovereignty and the fight against European injustice.   Lumumba eventually became prime minister through democratic elections, but his government only lasted for a very difficult period of two months during which time Belgium launched many attempts to reoccupy and subvert the independence movement. Patrice Lumumba represented a formidable opponent against the colonization forces in Africa. By advocating sovereignty and de-colonization in Africa, he represented everything that the Western powers feared. He was a man capable of affecting change throughout not only the Congo, but across Africa by promoting a self-sustained economy that was entirely independent from the European nations. He opposed the forces of colonialism throughout Africa. The riches of the Congo and the presence of Lumumbas movement could not be allowed to co-exist in the view of the United States and European political and business interests. Lumumba eventually became the victim of a coup funded primarily by the United States and Belgium, under the protection of the United Nations.   Although the United States and Belgium were the primary opponents of Lumumba, they were acting on behalf of European countries throughout the world because Lumumba personified the anti-colonial movement that everyone feared. They feared Lumumba not simply because he was a man that represented the anti-colonial movement, but because he was an African man that had become too powerful and had the potential to gain the loyalty and attention of his people and focus their goals on true independence and real control of their own resources. â€Å"The Congo crisis is due to just one man, Patrice Lumumba† (Hochschild 49) He had the potential to change the entire social structure of Africa and possessed the ability to affect change throughout the world by promoting democracy and equality.   Probably if Lumumba had lived a little longer, he would have organized and united the nation to avoid the conflicts that have characterized the country ever since time memorial. Poor Centralized governance of mobutu (dictatorship and exploitation of resources) For the next thirty years following the death of Lumumba, the Congo was the victim of a centralized government with the majority of the power concentrated in one man, General Mobutu, who was an instrumental Congolese collaborator with the Western interests in promoting the coup leading to the assassination of Lumumba. Kaplan (1979) notes that Mobutu created a rigidly centralized administration reminiscent of Belgian rule, topped by a single authority figure that he claimed to be in the African political tradition.   Governing by decree, his words literally were law.   His power was absolute, anchored in a constitution of his own inspiration that made him head of the legislative, executive, and judiciary This was not the type of free democratic society that Lumumba had envisioned, but instead one that still allowed many European nations to exercise the authority and influence that Lumumba vehemently opposed. The United States gave him well over a billion dollars in civilian and military aid during the three decades of his rule; European powers- especially France-contributed more (Hochschild 303)/   Mobutu did little to improve the quality of life of his citizens, and instead exploited his own citizens for his material and economic gain. Even after independence, the Congo was still the economic colony of Europe that existed under the control of Belgium. The European and American corporations and investments were still intact with Mobutu in control.   The Congo was now operating as a puppet government in which the United States used Mobutu to affect both economic and political decisions in an effort to stabilize its investments and operations in the country.   It estimated that a t the end of his reign, he was of the worlds wealthiest men; â€Å"his personal peak was estimated at $4 billion.† (Hochschild 303)   And very little of his fortune went to the people of the Congo. One will therefore be short sighted not to blame Mobutu for the conflicted Congo. He did his best to disorganize and disintegrate the countrys internal economic and political structures and systems that laid ground for what was termed as the â€Å"Africas World War†. His puppetism to western countries only resurrected and reminded the Congolese of the harsh, brutal and inhuman rule of Leopold and the Belgians which escalated the anger among the citizens. Mobutu can further be solely held responsible for the greed and mismanagement of natural resources for selfish needs among the Congolese today, he set a bad example. Ethnic differences One of the most sensitive areas of social life in Africa is the problem of cultural pluralism, which usually rears its ugly face in inter-ethnic relations International conflicts and civil wars, these are not simply products of failed diplomacy or policies of aggression. Virtually they all have roots in endemic cultural features of nations (Aluko: 2003). Patterns of languages, religious beliefs and legal institutions form as much a part of the environment enveloping nations have been tales of woes, anguish, sorrows, deprivations, sadness in most of the member states. Many nations of the continent such as Nigeria, Sudan, Somalia, Angola, Liberia and Sierra Leone, and even many nations of the great lakes region of the central Africa have been in turmoil due to ethnic related reasons. Political instability, economic and social disequilibrium became rampant in countries like Uganda, Burundi, Rwanda and the two Congos. Most ethnic conflicts have a background of domination, injustice or oppression by one ethnic group or another. The tremendous psychological pressure on human populations from political change creates a sense of anxiety that frequently makes people seek refuge in belief systems that involve definitions of membership and belonging. In Sudan, Garang charged that civil war erupted largely because Hassan Turabi, the power behind Khartoums government, wanted to impose Sharia, or Islamic law throughout Sudan. The other factor relates to resources and economics. At the simplest level, the struggle to survive can spawn or deepen ethnic problem. The more limited the resources the greater the danger of ethnic problem. For a range of reasons not necessarily bad or intentionally divisive, ethnic groups are also often positioned differently in an economy. Again, change can accentuate differences, triggering hostility or drastic action. The legacy of Colonialism did not do any better. The problems of most colonial nations of Africa are direct products of their colonial experience. The problems had been created by colonialism in different ways, especially by the indiscriminate merger of various ethnic groups to become monolithic entities, and at the same time treated the units as separate entities and allowed each to develop in whatever direction it chose in isolation from others (Nnoli, 1980. Dare 1986 and Young, 1998). This was the trend in virtually all the Anglophone countries of the sub-Sahar an Africa and some Francophone countries too. Colonialism also created structural imbalances within the colonies in terms of socioeconomic projects, social development and establishment of administrative centres. This imbalance deepened antipathies between ethnic groups. In Nigeria, the South achieved a higher level of social development than the North. Similarly, the Baganda advanced farther than the other Uganda ethnic groups, the Chagga and Haya were ahead of the other Tanzanian groups, the Kikuyu, Ashanti and Bemba made more rapid â€Å"progress† than the other Kenyan, Ghanaian and Zambian ethnic groups respectively. In fact, inter-ethnic relations in Kenya have been characterized by the hostility of all the other groups to the Kikuyu. Today, many nations of the sub-Saharan Africa are in one turmoil, violence or civil disorder of one kind or the other largely originating from the ethnic problem. Such countries include Burundi, Rwanda, Somalia, Sudan, Angola, Chad and the Democratic Republic of Congo. The Congolese people are made up of around 200 separate ethnic groups. These ethnic groups generally are concentrated regionally and speak distinct languages. There is no majority ethnic group some of the largest ethnic groups are the Luba, Kongo and Anamongo. The various ethnic groups speak many different languages but only four indigenous languages have official status Kiswahili, Lingala, Kikongo and Tshiluba. French is the language of government, commerce and education. Societal discrimination on the basis of ethnicity is widely practiced by members of virtually all ethnic groups and is evident in private hiring and buying patterns and in patterns of de facto ethnic segregation in some cities (GS: 2000-9). The ongoing conflict in the Eastern part of DR Congo has often been explained as be

Fleas Essays -- essays research papers

Fleas are very small insects. They are all flightless and do not have eyes, although two ocelli may be present. Their antennaes are short and their mouthparts are adapted for piercing and sucking. The female flea lays a few eggs daily that total up to 300 to 400 in its lifetime. The eggs are laid usually on animals and most drop off where they spend most of their time. Bedding, floor crevices, carpeting, along baseboards and areas near their favorite sleeping and napping sites are especially likely places where eggs will be found. These eggs hatch into larvae, which are baby fleas. The larvae spin a cocoon and, depending on environmental conditions, emerge as adults in as few as five days. The adult fleas then mate after a blood meal and then lay eggs. The life cycle is then repeated--until control measures break the cycle. The total life cycle can last from 25 days to several months. The bodies of both adults and young fleas have many backward pointing hairs and powerful leg muscle s. Fleas can jump 80 times their own height and 150 times their body length. Fleas have many mites and parasites and can have up to 150 living in them at one time. Adult fleas can cause medical problems including flea allergy dermatitis (FAD), tapeworms, secondary skin irritations and, in extreme cases, anemia. Some people may have a severe reaction, such as a general rash or inflammation, which can result in secondary infections caused by scratching the irritated skin area. Fleas may transmit bu...

Glue out of Cigarette Filter and Acetone Essay

This chapter includes the past related literature / studies and researches, articles and some information gathered to guide in this study or research. REVIEW OF RELATED LITERATURE According to (Marvilde, 1981), Classroom absence is a major factor responsible for falling standard in school education system today. Future of the nation always takes place in schools. School is such an organization, which deals with the betterment of society. According to (Khatri, 2013), School absenteeism has a far-reaching impact on a child’s academic progress and future. Absenteeism creates a dead, tiresome and unpleasant classroom environment that makes students who come to class uncomfortable and the teacher irritable. According to (Segel, 2008), in quality terms, absenteeism is a waste of educational resources, time and human potential. Students who have absenteeism problem generally suffer academically and socially. According to Lotz & Lee (1997), indicated that sustained absences might affect retention as it may degenerate into truancy. The study also revealed that the act of delinquency is more frequent among students who exhibit low grade, have spotty attendance an d later on drop out of school. Many factors can contribute to student absenteeism. Family health or financial concerns, poor school climate, drug and alcohol use, transportation problems, and differing community attitudes towards education are among the conditions that are often associated with a child’s frequent absence from school. According to (Marburger, 2001), It disturbs the dynamic teaching learning environment and adversely affects the overall well being of classes. Absenteeism is the one angle of viewpoint is one of the common causes of degrading performance of the student. According to (Australia, 2004), identified four major dimensions of absenteeism truancy, school refusal, school withdrawal and early leaving. It is important to identify the different dimensions of absenteeism in tackling the problem because they require different interventions. Truancy as the persistent, habitual and unexplained absence from school of a child of compulsory school age, although it can occur with parental knowledge and sometimes consent. According to Bond (2004), included fractional truancy, this occurs when student arrive late or leave early or spend entire days away from school. School refusal differs from truancy in that children refuse to attend schools even in the face persuasion and punitive measures from parents and school. These students stay at home with the knowledge of their parents and school administrators. According to (Mc Shane, Walter & Ray, 2001), School withdrawal means children are absent from school because their parents keep them away from school on a frequent basis. Their parents do not enroll them at school. Early leaving refers to children fewer than 15 who drop out of school before completing their schooling. According to (Williams, 2001), Attendance is an important factor in school success among children and youth. Studies show that better attendance is related to higher academic achievement for students of all backgrounds, but particularly for children with lower socio-economic status. Acco rding to (Epstein & Sheldon, 2002; Ready, 2010), Beginning in kindergarten, students who attend school regularly score higher on tests than their peers who are frequently absent. Chronic truancy (frequent unexcused absence) is a strong predictor of undesirable outcomes in adolescence, including academic failure, dropping out of school, substance abuse, gang involvement, and criminal activity. According to Savers, D. Et al (2005), when the student misses a day of school. Students have lost the chance to hear other’s interpreted and analyze the lessons or joins the introductions within the class. According to Nakpodia and Dafiaghor (2011), â€Å"lateness† can be defined as the â€Å"situation where an individual arrives after the proper, scheduled or usual time. Nakpodia and Dafiaghor attribute lateness or tardiness to a lot of factors or causes. Going late to bed and waking up late next morning is the most common. The authors’ added film watching late at night as a cause for tardiness. The student may forget that he/she needs to be in school the next day. Nakpodia and Dafiaghor as a possible cause for tardiness also consider the distance between the student’s home and school or solely the school’s location. Not just because it takes more time to get to school, but according to the authors, the student is susceptible to more distractions and hindrances along the way. Parent’s untimely tasks and commands are also reasons that students come late to school. Habitual tardiness can also be  learned from other members of the family, especially from the older ones. Lack of a firm and consistent policy on punctuality also encourages students to come late at school since there are no consequences attached to lateness or tardiness. These causes of tardiness will lead to serious effects. Nakpodia and Dafiaghor emphasized that lateness or tardiness is not just the problem of the late student but it affects the surrounding people. A student coming late in class distracts the rest of the students and disrupts the flow of the teacher’s discussion. It is even a burden to the student/s whom the late students ask for what to catch up with. The rest of the effects given by Nakpodia and Dafiaghor are about the welfare of the whole school, its productivity and revenue. Knowing the possible effects of lateness or tardiness, it is necessary for solutions to be executed. Studies have revealed that those students with â€Å"perfect or near-perfect attendance† have good grades compared to those students who miss classes often and latecomers. Nakpodi a and Dafiaghor stated that school administrators must lead by example. They should be punctual in their own meetings and classes to avoid students to think that being late is just all right since even the authoritative persons are doing it. They should as well teach it and integrate it in every lesson. The effort on the remedy on lateness or tardiness does not start and end with the school. It must begin with the parents of the students and the government must take part as well. Transportation must be improved in order to avoid students getting stuck in traffic or encountering other obstacles down the streets. According to Lauby (2009), puts it as a term used to describe â€Å"people not showing up on time†. According to Breeze et al. (2010), contributed by saying that, lateness is synonymous with â€Å"tardiness†, which implies being slow to act or slow to respond, thus not meeting up with proper or usual timing. According to Weade (2004), defined tardiness as â€Å"being late for any measurable length of time past the stated or scheduled start time for work or school.† In most schools, a student is considered tardy when he/she is not present when the school bells rings or when the first teacher starts to give instructional materials for the first subject in t he morning class. A study conducted by Barbara Lee Weade on 2004 tried to â€Å"determine if school tardiness is a predictor of work tardiness†. It provided a lot of literature that observes correlations and factors affecting a student’s tardiness. As cited by  Weade, the 3rd most common cause for the failure of a student is â€Å"excessive tardiness and unexcused absences†. Weade gathered data from the schools of participating students. First and foremost, she asked consent from the students and their parents in order to gain permission to collect their school records. She collected and studied the attendance and punctuality records of these students based on the number of unexcused absences and minutes of tardiness. Her study showed that among high school students, the grade point average is correlated with absences and tardiness. This means that students with better attendance and punctuality have higher grade point averages and vis-à  -vis. Her study was also able to show that attendance and punctuality of students are not consistent throughout the year. There were more absences and tardiness at the latter part of the year. Gender has also shown to be a non-factor in the attendance and punctuality of high school s tudents. The study was very comprehensive in its subject matter. It tackles not just school tardiness but also its implications on work tardiness. It shows that â€Å"students who are on-time for school classes are also likely to be on-time at work while students who are tardy frequently at school will probably also be tardy at work†. The study requires a lot of data but Weade was able to gather a sufficient amount. Though some possible correlations were not established, it is outside the scope of this research. According to (Sprick and Daniels, 2007), It creates problems, not just to the students but also to the teachers. It stated that the range of the teachers’ response was â€Å"from ignoring them to sending them to office†. This variation could lead the students to confusion as to how important it is to be on time in going to class. Another reason is the lack of motivation. Students who come to school on time are not given incentives or rewards. Also, responses to tardiness are lenient, that is nothing is done until the tenth strike or more. Another reason is â€Å"giving the student the impression that they won’t be missing anything if they are late† since in some classes, no important activities or instructions and no lessons are being done for first few minutes. Lastly, crowded hallways could create traffic, thus blocking the way of other students and making it hard for them to pass through. According to (Cowan Avenue Elementary School Community, 2007), Cowan Crier, the official School Publication of CAESC, also states that while having â€Å"occasional tardy† isn’t a big deal, unfailing tardiness  is and it gives students problems including being ill prepared for the job market. According to the results of the study of the U.S. Department of Education on â€Å"truancy†, which is related to tardiness, being present and on time in going to school are big factors on the â€Å"success and behavior† of the students. CAESC has their policy worked this way. Other schools initiated interdisciplinary curriculum that integrates discipline and conduct in academics. According to CAESC (2007) and Zeiger (2010), the most essential learning time of the day for the students lies in the morning, specifically between 8:00 to 9:30 AM. It is because the students are most mindful and observant at this time of the day. It is also the reason why the most important lessons and subject matters are discussed during this time. So when students are late or are not present during this time of the day, they, in effect, miss out most of the important lessons to be noted and learned. Thus, it is a lot important to value time and practice being on time while being a student. According to Zeiger (2010), the results from the survey report conducted by teachers show that students with high tardiness rates have â€Å"higher rates of suspension and other disciplinary measures†. Zeiger stated â€Å"Students who are frequently tardy to school are also more apt to be fired from a job for showing up late†. According to Santillano (2010) stated that psychological theorists considered some â€Å"personality traits, including low self-esteem and anxiety† as triggering factors of tardiness. She also mentioned that while some theorists considered tardiness as an â€Å"inborn quality† since our being early or late is â€Å"partially biologically determined†, which she also agreed, other experts also believed that some people are â€Å"chronically tardy† for the reason that they consciously and unconsciously get good things from it. In the book cited by Santillano, â€Å"Never be late again: 7 cures for the punctually challenged†, the author Diana DeLonzor suggested that some personality traits could most likely lead to a person being often late. Some of the traits included were â€Å"struggling with self control†, â€Å"feeling nervous or uncomfortable with social situations† and â€Å"getting distracted easily†. Santillano also discuss ed about the study conducted by DeLonzor at San  Francisco State University in 1997 in which she surveyed 225 respondents about their habits that makes them late from their appointments. It was also a test on the personalities of the respondents that affect their habits. According to the results of DeLonzor’s study, those respondents that were often tardy apt to be anxious and gets distracted easily. According to Oghuvbu (2008), female students are more likely to be late than male students because of â€Å"their involvement in domestic activities by their parents†. Also, as cited by Oghuvbu, â€Å"distance to school, school discipline, family background and school location†. Another study was the one conducted by Enamiroro Oghuvbu in Nigeria. The objective of the study was to determine the causes of the absenteeism and lateness among the secondary students in Nigeria and to seek for solutions to the growing problem. The study revealed that the causes of lateness among the secondary students in Nigeria were â€Å"going late to bed because of watching films and home movies, resulting into wake up late in the morning, distance to school and keeping friends who are not students†. These results went consistent with the results of Oghuvbu’s reference studies which proves that tardiness among students have been a growing problem and that it is caused, not jus t because of the students but also because of the lack of imposing discipline from the parents. According to (Emore, 2005), are some of the common causes for the tardiness of the secondary students? According to Pimentel and Quijada (2011), focused on the frequency of use by the UP Cebu freshmen students of Facebook and a part of the study tackled about the effect of the famous social networking site to UP Cebu students’ punctuality and academic performance. For their study, Pimentel and Quijada collected 60 respondents and provided them with questionnaires. The questionnaires contained questions that ask the respondents about their use of Facebook and its effects. A certain question asked the respondents if late-night use of Facebook has an effect on their punctuality. According to the results of the study, three out of 60 respondents are always late, eight said they are sometimes late, 12 said they are seldom late and 37 said that they never get late due to late-night use of Facebook. Generally, the results showed that the respondents are seldom late in class because o f late-night use of the social networking site. Ledoux, as cited by Pimentel and Quijada, said that lack of sleep causes neural malfunctions and further affects a person’s  behavior. In the study’s case, it is a student’s punctuality that is affected. According to (Britt, 1988), situations such as â€Å"crowded halls, limited opportunities for social interaction, irrelevant course content, and teacher indifference†. According to (Damico et al., 1990) are also factors that affect a student’s attendance and punctuality. As mentioned by Weade, personal values, financial security and lack of parental guidance. Some schools have already started finding solutions that would effectively minimize and/or eliminate tardiness among students. One of the solutions made by some schools is implementing tardiness policies, wherein they take steps in approaching the students and parents for them to solve the problem. According to Cordogan (as cited by Weade, 2004), said that a school in Chicago, Illinois adapted a similar curriculum and yielded positive results. Students under the interdisciplinary program exhibited more positive behaviors from students not from the curriculum. Interdisciplinary students showed less absences and tardiness, as well as higher grades. Other schools made smaller academic changes such as developing personality works and cooperative learning activities, such as creation of portfolios and tutorial to younger students. These taught the students better goal setting, decision-making skills and time management. In return, students under these behavior modification programs yielded less tardiness and higher grades.

Assessing calculates Dividend Payouts Essay Example Pdf - Free Essay Example

Sample details Pages: 9 Words: 2792 Downloads: 6 Date added: 2017/06/26 Category Finance Essay Type Analytical essay Did you like this example? In this scenario, we are assuming that the company pays out all of its $889,000 net income after tax as dividends; thus, classified as fully franked dividends. Also, due to the absence of investment allowance (which permits businesses to deduct a specified percentage of certain capital costs from their taxable income) and other investment allowances specified under tax law, the companys taxable income is the same as its accounting net income. Pearls Pty Ltd has a net income after tax of $889,000 that could be paid out as dividends to the shareholders, A (55%) and B (45%); therefore, each shareholder will receive a cheque for the following dividend amounts that are fully franked. Don’t waste time! Our writers will create an original "Assessing calculates Dividend Payouts Essay Example Pdf" essay for you Create order Pearls Pty Ltd: Fully Franked Dividend Payments A: $488,950 (i.e. $889,000 x 55%) B: $400,050 (i.e. $889,000 x 45%) Total $889,000 (= company net income after tax) Pearls Pty Ltd: Imputation Credits A: $209,550 (i.e. 55% x $381,000 company income tax) B: $171,450 (i.e. 45% x $381,000 company income tax) Total $381,000 (= income tax paid by the company on its net income of $381,000 Alternatively, Imputation Credit = Fully franked dividend x Company tax rate 1 Company tax rate As imputation credit = $488,950 x 30% 1-0.30 = $209,550 Bs imputation credit = $400,050 x 30% 1-0.30 = $171,450 Shareholder A will receive a dividend payment of $488,950 with an imputation credit of $209,550 whereas Shareholder B will receive a dividend payment of $400,500 with an imputation credit of $171,450. (b) The Australian dividend imputation system eliminates the double taxation of dividends wherein fully taxed company profit distributed as dividends is effectively taxed only once at shareholders marginal tax rate, a stark contrast to the classical tax system. When a dividend is paid out of corporate profits that have been taxed at the statutory corporate tax ra te, the shareholder receives the cash dividend plus an imputation tax credit which can be used to offset personal income tax obligations. In other words, the shareholder is able to reduce the tax paid on the dividend by an amount equal to the tax imputation credits. Basically, taxation of dividends has been partially paid by the company issuing the dividend. The net effect of the imputation process once dividends are distributed by the company is for income tax to be levied on the net income earned by a company at the shareholders marginal personal tax rates. Although the dividend imputation system does lower the overall tax rate, the system describes that the amount of income tax payable by a company on its net income will not change the after-tax wealth of its shareholders. Dividend imputation system may also encourage domestic business investment by reducing the cost of capital for domestically owned companies. Consequently, companies would withhold tax on profits as it lev els the cost of financing a business with debt, on which interest is deductible, and equity. Thus, this increases company income tax revenues. Also, imputation brings integrity benefits as the benefit to companies and their shareholders encourages the anti-avoidance of income tax. However, imputation tax credits are of no direct value to non-resident shareholders who have no Australian personal tax obligations. Thus, dividends paid to foreign shareholders will be taxed twice as company income tax and by shareholders home country as tax on dividend income and vice versa. From the perspective of Australian companies, the non-creditability of foreign taxes may increase the required return for offshore investment, discouraging such investments and encouraging a domestically-oriented investment focus. Thus, this creates biasness against investment in an internationally orientated Australian company or in a foreign company. Finish answer Question 2 (17 marks) Joanna Pickford has been working with ABC Bank for a year and has just been promoted to junior financial adviser. Her first client wants to set up a savings account to accumulate $30,000 for a new car and the client can deposit $200 each fortnight from his salary into the account. ABC Bank currently pays interest on its savings accounts at a daily compound rate of 4.0% p.a. Joanna worked out that with depositing $5,200 (26 x $200) into the account each year it would take the client 5.29 years (30,000 FV, 5,200 +/- PMT, 4 i COMP n) to reach his target. As there are 26 fortnights in a year this would be equivalent to 137.5 fortnights so she told the client that he would have to make 137 fortnightly deposits of $200 and a final deposit of $100 (0.5 of $200) one fortnight later. Do you agree with Joannas calculations? Explain why. If not, how long will it take the client to reach his savings target and how much should the last deposit into the account be? Start answer Question 2 a) According to Joannas calculation: PMT = $200 N = 137 I/Y = 4%/26 = 0.153846154% Additional = $100 Using Financial Calculator: 200 +/- PMT 137 N 0.153846154 I/Y 100 +/- PV 1 N 0.153846154 I/Y COMP FV giving $30,475.57 COMP FV giving $100.1538 FV = $30,475.57 + $100.15 = $30,575.72 Note: The future value of final deposit of $100 should also be calculated with reference to the interest rate and compounding periods. Based on the computation above, Joannas calculation is incorrect as the client will accumulate $30,575.72 which is greater than what the client wanted ($30,000). This is due to incorrect calculation of compounding periods (which will be calculated in part (b)). b) i) Every fortnight: PMT = $200 FV = $30,000 I/Y = 4%/26 = 0.153846154% N = ? 30,000 FV 200 +/- PMT 0.153846154 I/Y COMP N giving 135.0693802 periods Based on the computation above, the correct compounding periods would be 135 fortnights. Therefore, her client would need to deposit $200 for 135 fortnights or 5.192 years (135/26). ii) PMT = $200 I/Y = 4%/26 = 0.153846154% N = 135 FV = ? 200 +/- PMT 0.153846154 I/Y 135 N COMP FV giving $29,982.94 Therefore, the 135th fortnightly deposit would bring the future value to $29,982.94 $30,000 $29,982.94 = $17.06 Based on the computation above, the remaining final deposit into the savings account should be $17.06 one fortnight later to achieve his savings target of $30,000. Finish answer Question 3 (11 marks) Kym Baker had a HECS liability of $12,500 at the end of the year in which he finished his degree. The HECS debt accumulates interest at a rate equal to the inflation rate, which was 1.25% per annum over the first year after he graduated and 0.35% for the following year. At the end of the second year after graduation Kyms annual taxable income has increased to $29,000 and he is required by the tax office to pay an amount equivalent to 1% of his annual taxable income to reduce his HECS debt. How much HECS does Kym owe at the end of the second year after graduation after making payment for that year to the Tax Office? Draw appropriate time-line(s) to demonstrate your calculations. Start answer Question 3 End of First Year After Graduation: I/Y = 1.25% pa PV = $12,500 N = 1 12,500 +/- PV 1.25 I/Y 1 N COMP FV giving $12,656.25 Second Year After Graduation: I/Y = 0.35% pa PV = $12,656.25 N = 1 12,656.25 +/- PV 0.35 I/Y 1 N COMP FV giving $12,700.55 Payment = $29,000 x 1% = $290 Balance = $12,700.55 $290 = $12,410.55 Repayments = $290 Balance = $12,410.55 Interest p.a. = $156.25 Interest p.a. = $44.30 $12,500 $12,656.25 $12,700.55 t=0 t=1 t=2 Year Payment Principal Interest Loan 0 $12,500 1 $156.25 $12,656.25 2 $290 $245.70 $44.30 $12,410.55 Finish answer Question 4 (20 marks) Mr. Rupert Temby has borrowed some funds to buy a new Hi-fi system from a reputable electrical retailer. The electrical retailer has an associated finance company, Ezy Credit who has provided Mr. Temby with the following finance options to pay for the Hi-fi system; Option A: A lump sum in 10 years from today, or Option B: $500 in 5 years time with a further $1,000 payable in 15 years time. Mr. Temby believes that he could earn a return of approximately 6% p.a. on any savings he would have by not being required to pay for the Hi-fi system today. Required : Determine and justify to Mr. Temby the maximum amount that he should pay for Option A. (7 marks) Mr. Temby has now received further advice from Ezy Credit that instead of the lump sum in 10 years time (Option A) or the instalment payments after 5 and 15 years as previously indicated (Option B), they would be willing to accept a payment today of $850. Should Mr. Temby accept this offer? Justify your response. (8 marks) What important assumptions are you making in your answers to a) and b) above which should be discussed with Mr. Temby to ensure that you have given him appropriate advice so that he can readily understand the consequences of any decisions made based on your calculations? (5 marks) Start answer Question 4 a) At 10th year, PV = $ At 10th year, FV = $ $500 $1000 t=0 t=5 t=10 t=15 From Option B ($500 in 5 years with a further $1,000 payable in 15 years), the future value of this option would be the same as the maximum future value of the lump sum of Option A at 10th year in accordance to the timeline described above. PV = 500 N = 5 I/Y = 6% 500 +/- PV 5 N 6 I/Y COMP FV giving $ 669.11 FV = 1000 N = 5 I/Y 6% 1000 FV 5 N 6 I/Y COMP PV giving $ 747.26 $669.11 + $747.26 = $ 1,416.37 Therefore, the Option As maximum amount Mr. Temby should pay in 10 years is $ 1,416.37. b) The third options present value is found, as at today which is also known as time period 0. In other words, PV0 = $850. Therefore, to be comparable with third option, Option A and Bs present value must also be expressed at time zero. Option A (A lump sum in 10 years from today): The present value is calculated as below: FV = 1,416.67 I/Y = 6% N = 10 1,416.67 FV 6 I/Y 10 N COMP PV giving $ 791.06 Therefore, the present value of the lump sum of Option A is $791.06. Option B ($500 in 5 years time with a further $1,000 payable in 15 years time): The present value is calculated as below: 1st 5 years: Next 10 years: FV = 500 FV = 1000 I/Y = 6% I/Y = 6% N = 5 N = 15 500 FV 6 I/Y 5 N 1000 FV 6 I/Y 15 N COMP PV giving $373.63 COMP PV giving $417.27 $373.63 + $417.27 = $790.90 The present value of the instalment payment of Option B is $790.90. No, Mr. Temby should not accept the third option wherein he is allowed to pay $850 now to clear his debt. This is unacceptable because the present value from Option B of $790.90 is a cheaper option as compared to the present value of $850 for the third option. c) Assumptions: Individuals have time preference for money due to: Risk Preference for consumption Investment Opportunities Finish answer Question 5 (9 marks) You have just won the Golden Basket lottery which gives you the choice of your prize being either a house and land package with a current market value of $500,000 or receiving cash totalling $600,000 paid in three instalments of $200,000, $150,000, $250,000 respectively. If you choose the cash alternative the first of amount will be paid to you at the end of two years from todays date and the next and subsequent amount will be paid at the end of 3 years from the date of the previous instalment. If you use the nominal rate of 6.5 percent per annum that currently applies for a monthly repayment housing loan as your time value of money, use appropriate calculations to determine whether you should accept the house and land package or the cash instalment alternative. Draw appropriate timeline(s) to demonstrate your calculations. Start answer Question 5 Time Lines: House and Loan Package $500,000 t=0 t=2 t=5 t=8 Cash Instalments: The first instalment will be paid in year 2. The next one will be after 3 years and so in year 5 and the last one after another 3 years. So, in year 8, the time line would be: $200,000 $150,000 $250,000 t=0 t=2 t=5 t=8 In order to make the decision, we would need to compare the present value of the two options the land and house package is given now at present value of $500,000. For the instalments, we would need to discount the cash flows to get the present value. The interest rate is given as 6.5%. This is with monthly compounding as it is applicable to monthly repayments. We would need to calculate the effective annual rate as the cash flows are on yearly basis. Effective annual rate = (1 +j/m)m 1 = (1+6.5%/12)12 1 = 6.6972% 0 ENT 0 ENT 200,000 ENT 0 (x,y) 2 ENT 150,000 ENT 0 (x,y) 2 ENT 250,000 ENT 2ndF CASH 6.6972 ENT ? COMP giving $432,993.47 Therefore , we should accept the house and land package as it has a higher present value ($500,000) as compared to the cash instalments present value at $432,993.47 Finish answer Question 6 (26 marks) You have some money to invest for 12 months and are considering purchasing shares in the retail sector. After reviewing the historical performance and future prospects for Elite Jewellery Ltd. and So Lo Supermarkets Ltd, you have prepared the following information that you will use for your investment decision: Elite Jewellery Ltd So Lo Supermarkets Ltd Current share price $9.00 $11.60 Current EPS $1.20 0.90 Current Beta 0.85 0.60 Elite Jewellery Ltd So Lo Supermarkets Ltd Probability of Return Likely Return over next 12 mths Probability of Return Likely Return over next 12 mths 0.15 -1% 0.10 1% 0.60 12% 0.40 7% 0.25 18% 0.30 10% 0.20 14% Other relevant information: Current risk free rate of return: 5% p.a. Long run average return on market portfolio: 12% p.a. Required: (a) Calculate the expected return (R*) and standard deviation (s) for each share. (9 marks) (b) Briefly explain the meaning of expected return and standard deviation and outline what your calculations indicate about a relationship between risk and return. (4.5 marks) Briefly outline in words that an average person in the street can understand the difference between standard deviation and beta as measures of risk. (3 marks) Calculate the return investors with a diversified portfolio should require from each share. (2 marks) With reasons based on your computations, in (a) and (d) above, provide a recommendation of which share (if any) you should purchase/not purchase. (3 marks) On the basis of your analysis in (e) above detail what you would expect to happen to the price of each share in the market. (2 marks) Briefly explain what is likely to occur, in relation to the risk exposure of your investment portfolio, as you increase the number of diversi fied investments in your investment portfolio. (2.5 marks) Start answer Question 6 a) Elite Jewellery Ltd E(R) = [P(R1) x R1] + [P(R2) x R2] + [P(R3) x R3] = (0.15 x -1%) + (0.60 x 12%) + (0.25 x 18%) = 0.1155 = 11.55% Standard deviation, s = aring; (R R )2 x P(R) = (11.55% -1%)2 x 0.15 + (11.55% 12%)2 x 0.60 + (11.55% 18%)2 x 0.25 = 5.84% Investing in Elite Jewellery Ltd is expected to provide a return of 11.55% with a riskiness of 5.84% So Lo Supermarkets Ltd E(R) = [P(R1) x R1] + [P(R2) x R2] + [P(R3) x R3] + [P(R4) x R4] = (0.10 x 1%) + (0.40 x 7%) + (0.30 x 10%) + (0.20 x 14%) = 0.087 = 8.7% Standard deviation, s = aring; (R R )2 x P(R) = (8.7% 1%)2 x 0.1 + (8.7% 7%)2 x 0.4 + (8.7% 10%)2 x 0.3 + (8.7% 14%)2 x 0.2 = 3.63% Investing in So Lo Supermarkets Ltd is expected to provide a return of 3.63% with a riskiness of 3.63% b) The expected return indicates the average return that we may expect to earn over the next 12 months where all possible outcomes are weighted by the probability that each will occur. The standard deviation serves as an indicator of risk and measures the weighted average of the deviations of the returns from the average (expected) value. Using a normal distribution we can assign probabilities. There would be 68% probability that the returns would be between +/- 1 standard deviation (the return may be 11.55% + 5.84% or 11.55% 5.84% for Elite Jewellery), 95.5% possibility that returns would be between +/- 2 standard deviation and 99.7% probability that returns would be between +/- 3 standard deviation. The risk is denoted by the standard deviation. The higher the standard deviation, the higher the risk since variability in return is higher. So we would expect to have a higher expected return where the standard deviation is higher. c) The difference is that standard deviation is a measure of the risk if a particular stock is the only stock in the investment portfolio. What this implies is that if we have only one stock in our investment, the standard deviation of the return is the measure of risk since it indicates the variability in return, that is how much more or less the actual return can be from the expected return. On the other hand, Beta is measure of risk in the portfolio context. If we have more than one stock in our investment portfolio, we should not look at standard deviation but the beta of the stocks. The reason is that the portfo lio return will be influenced by the expected return of individual stocks in the portfolio and also by the correlation between the returns. It may be possible that one stock has a higher return, whilst another stock has a lower return. The portfolio return would be close to zero and the variability would be less, hence reducing risk. d) As mentioned in point 3, for a diversified portfolio, the measure of risk is the beta, thus the expected return would be dependent on beta. We will use the Capital Asset Pricing Model equation to calculate the expected return. Rf = 5% Rm = 12% b EJ = 0.85 b SL = 0.60 Elite Jewellery Ltd E(R) = Rf + bEJ (Rm Rf) = 5% + 0.85 (12% 5%) = 10.95% So Lo Supermarkets Ltd E(R) = Rf + b SL (Rm Rf) = 5% + 0.60 (12% 5%) = 9.20% Therefore, the expected return for the diversified portfolio on Elite Jewellery Ltd and So Lo Supermarkets Lts is 10.95% and 9.20% respectively. (e) Based on the computation above, it is recommended that Elite Jewellery Ltd shares should be bought as it generates a higher expected return as compared to So Lo Supermarkets Ltd and the risk-free investment. Although higher returns are accompanied with a higher risk, it is assumed that we are interested in shares with the highest return. (f) (g) Finish answer