The assignment provides students with
an opportunity to work in a group and demonstrate their capacity to conduct
research on a prescribed topic on an academic level and to critically evaluate
key concepts and issues related to the topic. The assignment task is an
opportunity for students to demonstrate evidence of broad and in-depth research
on a chosen research topic:
§To
clearly work out findings, and interpret and present them in a meaningful way.
§ To
clearly structure thoughts and arguments and to put findings into the context
of current debates in the field.
§To
apply textbook tools to solve practical problems. §
To present a written work in a
professional manner.
§
Note:
The assignment has two parts namely Part I and Part 2. Both parts are
compulsory for each group. There are five questions in Part I. Each group has
to attempt all questions in Part I. Part 2 requires writing an essay or a
report on any of the three topics (options) described in section titled
Assignment task Part 2.
Answers to Part I questions must be
well organised and supported by workings. Detailed calculations must be
provided. Submission showing answers only will not be marked. Math-type or
MS-Equation Editor should be used to write equations where necessary. Only well
researched attempts to Part 2 will be highly rewarded. Students are therefore
expected to engage in in-depth academic research.
Three topics have been prescribed and
a group has to choose any one of them. Each of the prescribed topics requires
students to consult a variety of electronic resources, such as journal
articles, books and the databases to which the UWS library subscribes. If you
are unsure about the use of electronic resources, you should consult the
liaison librarian by making prior appointment.
A group should consist of at least two students but the
size must not exceed five in any case. Students should form the groups
preferably with those enrolled in the same class by no later than Week 4 and
inform the unit coordinator in written.
Submission
requirements
Format
The assignment may be written in
essay or report format. Students must be
familiar with these formats and
follow the appropriate style of organising a
written work applicable to the
chosen format. For example, if you choose the
report format, your written work
must be organised like a report which includes
among others a table of contents,
executive summary, introduction, analysis,
interpretation of results,
recommendation etc. Similarly, if you choose the essay
format, you should be familiar with
the organisation of an essay.
Minimum
In any case (whether it is organised
as a report or an essay) the assignment
requirements
must satisfy the following
requirements.
The assignment is attached to the
appropriate coversheet. The coversheet can
be downloaded from the unit website.
The coversheet must be signed by each
member of the group and show clearly
their name and student ID. A submission
without Student ID will not be
assessed. The assignment must be typewritten
and stapled.
Must be organised in the appropriate
manner for example must have sections
such as introduction, analysis,
results and interpretation, and finally a
conclusion.
Must follow the recommended
(Harvard) referencing style. Sources of any
document, database, concept,
definition etc. must be cited in the appropriate
manner.
Must provide a list of references.
The list should include only those used or
referred to in the body of the
assignment. Penalty applies for not providing the
list of references.
Page 1 of 9
Presentation
The assignment should be presented
as follows:
Font/Font size: Times New Roman (preferred)
/12, regular
Margin: (Left, right, top and
bottom) 2.54 cm
Page numbers: yes
Line Spacing: 1.5
Paragraph Style: Justified
Referencing
The School of Business recommends
the Harvard UWS referencing style.
Full details of referencing systems
can be found at:
http://library.uws.edu.au/citing.php?arg=1&p=ofs
A full range of resources for
searching and citing references is available at:
http://library.uws.edu.au/training.phtml
Student
Group assignment tasks must be done
and submitted as a team. Free riders in
evaluation of
a group are identified by
confidential evaluation by the fellow students in the
group member
group. The questionnaire for the
evaluation is available on the unit webpage.
participation
Should a student have to say
anything about his/her group mate; he/she can do
so by completing this questionnaire
and submitting it confidentially to the unit
coordinator.
Note:
This assignment task may not be feasible for undertaking individually. If you
want to complete this task by your own, let the coordinator know. However,
please be advised that doing the work individually will not be taken as a
special case by any mean. The same marking criteria will apply regardless of
whether it is completed individually or in a group.
Note: The unit coordinator will post
assessment marks using the‘My Grade’
function on the unit’s vUWS site. For more comprehensive
feedback, students should contact the coordinator to make an appointment.
Due: This assessment is due on Sunday, 25 May
2014 by midnight.
The assignment must be submitted
online through the assignment drop box on the unit webpage. Submission by any
other means may not be accepted. Please note that each group will be able to
submit just one time. Do not drop the group member evaluation report into the
assignment drop box. If you do so the link will disappear immediately and you
will not be able to submit your actual written work. The group member
evaluation report is a confidential document. Submission of this report is not
compulsory. However, you can send the coordinator a report about your fellow
members if you feel it is necessary.
Page 2 of 9
Details: Part 1
This part of the assignment task is
compulsory. There are five questions in this part. Each group must attempt
these questions. Each question is worth 10 marks and the weight of this part of
the assignment is 50 per cent of the total marks (20) allocated to group
assignment. Detailed calculations must be provided. Submission showing answers
only will not be marked. Use math-type or MS -Equation Editor to type equations
where necessary.
Question 1 A 5-year bond with face value of $1000 makes annual coupon
payments of $80
and is currently selling at par.
Calculate the return you will earn if you buy the
-10
Marks
bond now and sell it at the end of
the current year when bond is expected to
have a yield to maturity of 6 per
cent.
(10 marks)
Question
2
Table
2.1 is an excerpt of MM Bank’s balance sheet. Use the balance
sheet
-30
Marks
information
and the notes underneath to answer questions 2a through 2c.
Table 2.1: Excerpt of the balance
sheet of MM Bank Limited.
Assets
Au$
Liabilities
Au$
2-year
175,000
1–year
CD
135,000
Treasury
Bond (TB)
15-year
165,000
5-year Deposits
160,000
Corporate
Bond (CB)
Note: Interest rates are currently as
under:
2
-year
TB
5% p.a.
15-year CB
9% p.a.
1
-year
CD
4.5% p.a.
5-year
8%
Deposits
Assume that all instruments are
currently selling at par (equal to book value) and that the frequency of
interest payment is once a year for all instruments.
a. Fill Table 2.2 to show the impact on
the Bank’s equity of a 2% change in all interest rates. Provide
working below the table.
(15 marks) Table 2.2: Impacts on equity for a 2% change in
the interest rates.
Particulars
Book Value (au$)
Value when interest
% change in value due
rate increases by
to change in interest
2% (au$)
rate
2-Year
TB
175,000.00
15-Year
CB
165,000.00
A.
Total
340,000.00
Assets
1-Year
CD
135,000.00
5-Year
160,000.00
Deposits
B.
Total
295,000.00
Liabilities
Equity
(A-B)
45,000.00
Page 3 of 9
Question 2
b.
Calculate duration at the current rate of interest (see notes under
Table
continued
2.1) of each instrument, the
weighted average duration of assets and
liabilities, and the weighted
average maturities of assets and liabilities,
and the duration and maturity gaps.
Insert your results in the marked
(????) cells of Table 2.3. Show
workings under the table.
(10 marks)
Table 2.3: Maturity and Duration Gap
Particulars
Book Value
Duration
Weighted
Maturity
Weighted
(Au$)
(year)
Average
(year)
Average
Duration
Maturity
(year)
(year)
2-Year
TB
175,000.00
????
2
15-Year
CB
165,000.00
????
15
Total
Assets
340,000.00
????
????
1-Year
CD
135,000.00
1
1
5-Year
160,000.00
????
5
Deposits
Total
295,000.00
????
????
Liabilities
Maturity
Gap
????
Duration
????
Gap
c.
What do the gap estimates say about the Bank’s
exposure to the interest
rate risk? What is the economic
interpretation of the duration gap?
(5 marks)
Question 3
An insurance company issued a $90
million 1-year note at 8 per cent add on
- 20 Marks.
annual interest (paying one coupon
at the end of the year) and used the
proceeds to fund a $100 million face
value 2-year commercial loan at 10 per
cent annual interest. Immediately
after these transactions were
(simultaneously) undertaken, all
interest rates went up 150 basis points.
a.
Use the duration model to estimate the change in the value of the loan
due to the increase in the interest
rate.
(5 marks)
b.
Find the exact change in the value of the loan using the valuation
formula.
(5 marks)
c.
Contrast the results obtained in (a) and (b). There is obviously a
difference in the results. Explain
what makes this difference and how the
difference can be corrected. Show
all workings and calculations.
(10 marks)
A firm is issuing a two-year debt in
the amount of $200,000. The current market
Question 4
- 20 Marks.
value of the assets is $300,000. The
risk-free rate is 6 per cent, and the
standard deviation of the rate of
change in the underlying assets of the
borrower is 10 per cent. Using
Merton’s model, determine the following:
Solution: If i give you 5 questions with sub questions