This study investigates the risk of a future rise in the interest rate. Many of our pension funds are invested in long-term bonds, which with the current level of interest rates experiences an until now unseen amount of risk. The possibility of rising interest rates is high and that will cause the longterm bonds to decrease in value resulting in a loss. Because of this risk many investors with a long investment strategy have been looking for alternatives investments with a similar payback profile. Alternatives investment can be roads, buildings, infrastructure etc. and common for all of them are, that you invest a significant amount of money in the beginning and later receive an almost fixed cashback each year. Fixed because the cash inflow and outflow doesn’t variate that much; The customs for using the road are fixed and the number of cars using it almost the same each week. The tenant on the buildings have a fixed rent and the same 2 things applies to infrastructure. Beside the cashback you also have an asset of value, which you can sell down the line. Similar to an investment in bonds where you receive a fixed interest rate each year and when it expires you get you invested money back. The report looks into the different risks and how you as an investor can secure your investment from these, the expected return on an investment in Femern A/S representing an alternative investment and the expected return on a long-term investment I bonds. I have for this study made a forecast on the interest rates; Indskudsbevisrenten and obligationsrentegennemsnitet by using a Geometric Brownian motion and the Vasicek interest rate model. The result of the analysis show, that the expected return on an investment in Femern A/S is much higher than the investment I long-term bonds given the development of the interest rate forecasted. Also, it will not be as exposed to the risk of increasing interest rates as the long-term bond investment, but will be exposed to several other risks, which is difficult to measure and secure your investment against. The conclusion to this research is that an investment in infrastructure can’t replace long-term bonds in a diversified portfolio, but that it should be taken into consideration combined with equities and bonds in a portfolio with a long-term investment strategy.
|Educations||Graduate Diploma in Finance, (Diploma Programme) Final Thesis|
|Number of pages||98|