Essay MAF202: Money and Capital Markets – The Commonwealth Government Issued – Business Assignment Help

Assignment Task:

Question 1
On 1 April 2020, in response to the Covid-19 outbreak, the Commonwealth Government issued seven-year fixed-interest bonds with a face value of $20 million, paying half-yearly coupons at 6.50 per cent per annum. Coupons are payable on 31 March and 30 September each year until maturity.

On 15 September 2021, the holder of the bonds sells at a current yield of 6.00 per cent per annum. You are required to calculate:
a) n (number of periods)
b) i (current yield)
c) C (coupon payment)
d) k (fraction of elapsed interest period since the last coupon payment)
e) P (price at which the bonds will be sold)
(Hint: The seller of the bond must take account of the fact that the bond is between coupon payments)

Question 2 (this question has two parts, (a) and (b))
Firms, from time to time, raise fresh capital to support ongoing business operations and undertaking of new projects.
a) Briefly explain the distinction between a pro-rata rights issues and convertible notes issue with examples.
b) XYZ Limited has decided to implement a rights issue to its existing shareholders on a pro-rata basis of one new share for each 4 shares held. The issue price is $4.00 per share and the current market price is $5.00. Calculate theoretical ex-rights price per share.

Question 3 (this question has two parts, (a) and (b))
The global financial crisis has focused a renewed attention on the regulation of the financial system. A number of financial institutions collapsed during the crisis. Based on Basel accord, the prudential standard requires an institution (depository) to maintain a risk-based capital ratio (CAR) of 8% of risk weighted asset.

a) Using the standardised approach to credit risk, calculate risk weighted asset and its minimum capital requirement for the following asset transactions based on Basel III.

Question 4 (this question has two parts, (a) and (b))
a) A company issues a bank-accepted bill to fund a short-term business project. The bill is issued for 180 days, with a face value of $1,000,000 and a yield of 7.00 per cent per annum. What amount will the company raise to fund the project?
b) As the owner of a small IT company, you approach the ANZ Bank to obtain a term loan. The bank offers your company a loan of $30,000 over a five-year period at a rate of interest of 7.00 per cent per annum, payable at the end of each month. Calculate the monthly loan instalment.

Question 5 (this question has two parts, (a) and (b))
XYZ Resource Pty Ltd recently issued $10 million in floating rate notes in order to fund an infrastructure project. The notes pay an annual coupon of BBSW plus 100 basis points. The company approaches Bendigo Bank to establish an intermediated vanilla swap. The swap contract sets a fixed rate of 7.00 per cent per annum and a reference rate of the 12-month BBSW.
a) Describe the difference between direct and an intermediated swap?
b) At the first interest payment date, the BBSW is 7.50 per cent per annum. Determine which parties to the swap contract are required to make the first payment and why?

Question 6 (this question has two parts, (a) and (b))
The global foreign exchange markets are enormous. The Bank for International Settlements estimated in 2016 that USD 5 trillion in FX transactions occurred daily.
a) Distinguish between speculative and arbitrage transactions in the FX market.
b) Calculate the GBP/NZD cross rate from the following quotes:
GBP/USD 1.6270 – 75
USD/NZD 1.3292 – 97