FINM7407 Take Home Final Assessment
Course code and name: FINM 7407 Financial Institutions and Markets
Assessment type: Take home Assessment
Weighting: This assessment is weighted at 40 % of your total mark for this course.
Detailed Instructions:
• There are 4 questions to this take-home assessment, each of them carries 10 marks
• Please submit your answers to all questions (including appendix tables, charts) as a single PDF or Word document. All submitted work needs to be embedded into the document (eg, any tables, charts, photo’s, etc into the Word/PDF document) and submitted via the Turnitin link.
• Please make sure you have your full name and student number on every page of your take-home assessment (i.e., insert a Header).
• Please name your files as follows:
FINM7407_TakeHome Assessment_Question #: Last Name_FirstName_StudentID
• Your PDF document should be typed in Times New Roman font, size 12. The take-home assessment should be double spaced and have margins of 2.54 cm.
• Teaching staff will not answer any questions regarding the take-home assessment as this gives students an unfair advantage over others.
• Note that your take-home assessment will be analysed for plagiarism using TurnItIn. Once you are satisfied with the TurnItIn similarity report for your PDF file, that copy becomes your final copy. See for instructions https://www.library.uq.edu.au/library-services/turnitin-assignments
• Late submissions will lose marks as per the ECP.
• Please ensure you reference appropriately and correctly in each question. For example, your references for Q1 should be at the end of Q1, NOT at the end of the document.
Question 1 (10 Marks)
a. Discuss the connection between exchange rate market and interest rate market? Marks 4
b. Describe with example how slope of a yield curve can predict financial crisis? Marks 4
c. Calculate the investment yield if the 4.75 per cent 21 April 2027 bond was purchased on 21 April 2019 at 2.5 per cent and sold on 21 April 2023 at (a) 2 per cent, and (b) 4 per cent and the coupons received were invested at 3.5 per cent. Marks 2
Question 2 (10 Marks)
a. Explain the factors used in Gordon’s dividend growth model and their relationship to the estimated share price. Marks 2
b. Estimate JB Hi-Fi’s share price if it has just paid a dividend of 163 cents, its required rate of return is 10.5 per cent p.a. and its estimated dividend growth rate is 5.2 per cent p.a. Compare this with its last traded price (http://www.asx.com.au/asx/share-price-research/company/JBH). What market action would you take if you accept Gordon’s growth model as a good predictor of share prices? Marks 3
c. Use the Yahoo webpage http://au.finance.yahoo.com/quote/rio.ax to retrieve Rio’s latest beta figure. Estimate Rio Tinto’s (RIO) required rate of return if the current risk-free rate of interest is 1.75 per cent p.a., the expected market return is 9 per cent. Marks 2
d. Explain the ‘positions’ a trader can have in futures contracts. Marks 3
Question 3 (10 Marks)
a. Why do most advanced countries follow a floating exchange rate system? Marks 5
b. Briefly discuss the importance of a derivative market. Marks 5
Question 4 (10 Marks)
a. At its meeting on 7 June, the Board of the Reserve Bank of Australia decided to increase the cash rate target by 50 basis points to 85 basis points. Discuss the implications of this rate increase to Financial Sector Stability. Marks 6
b. Do you think the cash rate may increase further soon? Why? Marks 4