TUTORIAL 3 - TUTORIAL DISCUSSION
2. A number of the advisory services investment banks provide to their corporate clients are
defined as off-balance-sheet business. One service is providing advice to clients on balancesheet restructuring. Explain the conc
Overview of the Module
Underpinnings of financial theory
Net present value
Fixed Income Securities
Equilibrium asset pricing
You are quoted the following spot exchange rates :
Assume the one-year interest rates in Australia, the UK and the US are as follows :
Interest rate (% p.a.)
A government bond with a face value of $100,000 has a coupon rate of 6%p.a. paid
semi-annually. The bond has 5 years until maturity. After 6 coupon payments (4
payments remaining) the market yield on identical bonds is 8% p.a.
a) Calculate the price of th
a) Explain what is meant by an annuity, distinguishing between an ordinary
annuity and an annuity due.
b) Calculate the present value of an annuity of $100 paid at the end of each
month over a five-year period. The required rate of return is 6% p.a.
Lighthouse Ltd just paid a dividend of $1.50 per share. This dividend is expected to
remain constant indefinitely. An investor has determined that the required rate of
return for this type of investment should be 8 per cent per annum.
a) Calculate the pri
Describe the principle function of a finance company? Discuss both its main sources of
funds and its principle uses of funds.
Finance companies borrow funds in the domestic and international financial markets in order
to provide loans to their customers.
Homework 2 Solution
Commercial banks are the dominant group of institutions within the financial system.
Banks are an important conduit for economic growth within a country. They are financial
intermediariesattract savings and investment from surplus enti
Homework Question One Submission Due Week Beginning 28/2/11
Financial markets are often characterised by the nature of transactions
that occur within these markets. Describe the features that distinguish
the two markets in each of the following:
TUTORIAL 10 - DISCUSSION QUESTIONS
1. Discuss the nature and purpose of derivative products. In your answer consider the
different types of derivative products, the risks managed by these products and the
differences between exchange-traded contracts and
TUTORIAL 9 - TUTORIAL DISCUSSION
1. Describe the functions, structure and operation of the international FX markets.
Include in your answer the main locations of the markets and explain the roles of FX
dealers and FX brokers.
the FX market is a global ma
4. You are the loans manager for a bank and you are currently writing a loan contract
for a medium-sized manufacturing company. Within the loan contract you intend to
incorporate a number of positive and negative loan covenants.
TUTORIAL 7 TUORIAL DISCUSSION
2. Explain the operation of trade credit, and calculate the opportunity cost of an
invoice that provides for payment in thirty days time, or a 0.75 per cent discount if
the account is paid within seven days.
trade credit is o
TUTORIAL 6 - TUTORIAL DISCUSSION
1. Simple interest accumulation
(a) Define and explain the notion of simple interest.
the calculation of interest is based on the initial principal amount invested or borrowed
for example, funds invested in a bank term d
TUTORIAL 5 - TUTORIAL DISCUSSION
2. (a) Define risk, and distinguish between systematic risk and unsystematic risk.
What factors are responsible for the two types of risk?
in its basic form, risk comprises components of probability, variance, volatility
TUTORIAL 4 - TUTORIAL DISCUSSION
3. Outback Enterprises Limited has identified that it is exposed to both business risk and
financial risk. List some sources of both forms of risk, and explain the relevance of the
concept of financial risk to the funding
TUTORIAL 2 - TUTORIAL DISCUSSION
2. Banks have always been the dominant institutions within the financial system, but
their relative importance has fluctuated due, in part, to changes in the regulatory
environment in which they operate. Analyse and discus
TUTORIAL 1 - TUTORIAL DISCUSSION QUESTIONS
2. (a) Discuss the role of money in a financial system.
money is a financial asset that facilitates financial and economic transactions
a medium of exchangeswapped for goods and services
a store of valuewealth
An investor has taken a long position on a call option on BHP Billiton shares. The option
premium was $2.50 and the exercise price is $46.80. The current price of BHP Billiton is
a) Describe five factors that may affect the price of this option.