ACCOUTNING AND FINANCE

• Assessment 2

Assignment 2 is worth 20% of total assessment and is marked out of 100. Please show all workings including any formula used.

Question 1 (20 marks) (show all workings)

This question relates to material covered in the Topic 3 on Financial Mathematics. This question addresses the 6th subject learning outcome.

a. A couple wants to accumulate $10,000 by making payments of $800 at the end of each half year into a savings account that earns interest of 10% per annum. Find the number of full payments required and the size of the concluding payment.

b. A woman wins $200,000 in a lottery. She takes only $20,000 in cash and invests the balance at a rate of interest of 10% with the understanding that she will receive 180 equal monthly payments, with the first one to be made in 4 years. Find the size of the payments.

c. Dr.Ritz has been depositing $4,000 in her savings account every December since 2007. Her account earns 5% compounded annually. How much will she have in December 2017? (Assume a deposit will be made in the year 2017).

d. Mary Tune will receive $20,000 every year for the next 10 years as a payment for a new song she has written. If a 6.0% rate is applicable, should she be willing to sell out her future rights now for $150,000?

e. Mr. Tomas wants to buy an annuity of $1,000 a year for 10 years that is protected against inflation. The ABC Trust Company offers to sell him an annuity where payments increase each year by exactly 10%. Find the cost of this annuity if the rate of interest is 12% per annum.

Question 2 (20 marks)

This question relates to material covered in the Topic 1. This question addresses the 1st, 2nd and 3rd subject learning outcomes.

Write a short essay of 300 words for each of the following questions. For each question, illustrate your answer with an appropriate example.

a. Describe the ‘maximisation of shareholder wealth’ concept and contrast it with the notion of ‘maximisation of profit’.

b. ‘Risk aversion implies that only risk-free investments will be undertaken by corporate managers’. Critically evaluate this statement (indicate whether you agree or disagree in your answer).

Question 3 (60 marks)

This question relates to material covered in the Topics 3-5. This question addresses the 1st, 2nd and 3rd subject learning outcomes.

i. Find the monthly holding period returns for 2016 for Commonwealth Bank (CBA), Rio Tinto (RIO) and the market (MKT) as proxied by the All Ordinaries index. The monthly holding period return is the return you would receive if you bought an asset on the first day of the month (opening price) and sold it on the last day of the month (closing price). Using Excel, graph your % return results on one graph with returns on the y axis and time on the x axis to enable comparison between options. (Use 'Close' rather than 'Adjusted Close' for the selling price) Note: Monthly opening price MUST equal previous month closing price. When calculating return students should use the previous period closing value as the opening value for their next calculation. It is recommended that students use a line graph within the Excel chart options to allow effective comparison of performance between the different securities (15 marks).

ii. For each investment, what is the average monthly holding period return? (6 marks).

iii. For each investment, what is the annual holding period return? (6 marks).

iv. Calculate the standard deviation of the monthly rates of return for each share and the market (9 marks).

v. Using Excel plot your results from (iii) and (iv) above with risk on the x axis and return on the y axis (3 marks).

v. If the 10 year government bond rate is 3.25% and the long term return on the market is 7%, assuming the beta (ß) for CBA is 1.11 and for RIO is 0.95, use the Capital Asset Pricing Model (CAPM) to find the expected returns for CBA and RIO (6 marks).

vi. Construct the Security Market Line (SML) showing where CBA and RIO lie (5 marks).

vii. Based on your findings construct a portfolio made up of 60% CBA and 40% RIO. Calculate the estimated return and ß for this portfolio (4 marks).

viii. Based on your understanding of the CAPM and the SML, which of these asset(s) or portfolio(s) would you invest in and which would you not invest in. Explain your choice (6 marks).

Rationale

This assessment task covers Topics 1 through 5 and has been designed to ensure that you are engaging with the subject content on a regular basis.

The assessment task addresses several of the learning outcomes for the subject including that students:

o be able to evaluate and explain the congruence of accounting, finance and treasury functions;

o be able to explain and critique the objectives of financial management in contemporary organisations;

o be able to critically evaluate mainstream financial theory and concepts;

o be able to demonstrate appropriate communication skills in the context of corporate finance; and

o be able to demonstrate specific technical competencies and skills in utilising quantitative techniques in financial analysis.

Marking criteria

Marking Rubric – ACC515 2017 60 Assessment 2

Learning outcome Marking Criteria High Distinction Distinction Credit Pass

Ability to identify issues in modern finance theory and apply the appropriate finance technique. Understanding of the theoretical issues underpinning financial management. Appropriate and professional referencing of sources. Ability to present your answers neatly, effectively, and appropriately using computers. Correctly identify underlying financial management issues and all of the potential implications of finance data/results and underlying finance theory. Output and recommendations are well researched, logically argued, and well written in a manner that very effectively conveys the key outcomes and recommendations to the end user. All references and sources acknowledged and professionally presented. Correctly identify underlying financial management issues and all of the potential implications of finance data/results. A demonstarted and excellent understanding of finance theoretical perspectives. Output and recommendations are well researched and include well written arguments with references and sources acknowledged and output professionally presented Correctly identify underlying financial management issues and major implications of finance data/results A good understanding of finance theoretical perspectives. Output and recommendations are well written and logically argued with references and sources acknowledged and professionally presented Identify underlying financial management issue and most implications of the reported finance data/results. A solid understanding of finance theoretical perspectives. Written in clear and concise language with references and sources acknowledged and professionally presented Identify underlying financial management issue.Some understanding of theoretical perspectives and capacity to interpret the results of quantitative problem analysis in a manner that adds value to the finance data/results. Academic referencing and fornmatting at an acceptable standard developed for management

Ability to identify type of finance problem and apply appropriate financial management technique to solving problem. Ability to correctly interpret the results of your analyses and to clearly convey your understanding of the results to the end user

Correctly identify underlying financial management problem and identify and use appropriate finance technique to accurately solve problem. High level ability to interpret the results of quantitative problem analysis in a manner that adds value to the data/results. Use of appropriate formulae with no errors. Excellent standard of formatting enhancing the logical presentation of the data output enhancing comprehension by report end users Correctly identify underlying financial management problem and identify and use appropriate finance technique to accurately solve problem. Ability to interpret the results of quantitative problem analysis. Use of appropriate formulae with very few errors. High standard of formatting enhancing the logical presentation of the output which aids understanding by report end users Identify underlying financial management problem and use appropriate finance technique to solve. Capacity to broadly interpret the results of quantitative problem analysis. Use of appropriate formulae with few errors. Consistent formatting that enhances the presentation of the output to improve understanding by report end users Identify financial management problem and solve using appropriate finance technique. Able to interpret the results of quantitative problem analysis. Largely correct use of appropriate formulae. Largely consistent formatting and presentation of the output to meet professional expectations largely identify financial management problem and attempt to solve using appropriate finance techniques. Ability to generally interpret the results of quantitative problem analysis. Mostly correct use of formulae. Acceptable formatting and presentation of the output.

Requirements

As per the CSU Referencing Policy, each assessment item must indicate the style of referencing required for each task. Students should be directed to a single Guide that supports the required referencing style for each assessment task. For those tasks requiring the use of APA, students should be directed to the CSU Referencing website at http://student.csu.edu.au/study/referencing-at-csu

This assignment must be submitted through Turnitin.

It is recommended that your name and student ID are included in the first page and the pages should be numbered.

Further details about submission in Turnitin are provided in online submission.

• Assessment 2

Assignment 2 is worth 20% of total assessment and is marked out of 100. Please show all workings including any formula used.

Question 1 (20 marks) (show all workings)

This question relates to material covered in the Topic 3 on Financial Mathematics. This question addresses the 6th subject learning outcome.

a. A couple wants to accumulate $10,000 by making payments of $800 at the end of each half year into a savings account that earns interest of 10% per annum. Find the number of full payments required and the size of the concluding payment.

b. A woman wins $200,000 in a lottery. She takes only $20,000 in cash and invests the balance at a rate of interest of 10% with the understanding that she will receive 180 equal monthly payments, with the first one to be made in 4 years. Find the size of the payments.

c. Dr.Ritz has been depositing $4,000 in her savings account every December since 2007. Her account earns 5% compounded annually. How much will she have in December 2017? (Assume a deposit will be made in the year 2017).

d. Mary Tune will receive $20,000 every year for the next 10 years as a payment for a new song she has written. If a 6.0% rate is applicable, should she be willing to sell out her future rights now for $150,000?

e. Mr. Tomas wants to buy an annuity of $1,000 a year for 10 years that is protected against inflation. The ABC Trust Company offers to sell him an annuity where payments increase each year by exactly 10%. Find the cost of this annuity if the rate of interest is 12% per annum.

Question 2 (20 marks)

This question relates to material covered in the Topic 1. This question addresses the 1st, 2nd and 3rd subject learning outcomes.

Write a short essay of 300 words for each of the following questions. For each question, illustrate your answer with an appropriate example.

a. Describe the ‘maximisation of shareholder wealth’ concept and contrast it with the notion of ‘maximisation of profit’.

b. ‘Risk aversion implies that only risk-free investments will be undertaken by corporate managers’. Critically evaluate this statement (indicate whether you agree or disagree in your answer).

Question 3 (60 marks)

This question relates to material covered in the Topics 3-5. This question addresses the 1st, 2nd and 3rd subject learning outcomes.

i. Find the monthly holding period returns for 2016 for Commonwealth Bank (CBA), Rio Tinto (RIO) and the market (MKT) as proxied by the All Ordinaries index. The monthly holding period return is the return you would receive if you bought an asset on the first day of the month (opening price) and sold it on the last day of the month (closing price). Using Excel, graph your % return results on one graph with returns on the y axis and time on the x axis to enable comparison between options. (Use 'Close' rather than 'Adjusted Close' for the selling price) Note: Monthly opening price MUST equal previous month closing price. When calculating return students should use the previous period closing value as the opening value for their next calculation. It is recommended that students use a line graph within the Excel chart options to allow effective comparison of performance between the different securities (15 marks).

ii. For each investment, what is the average monthly holding period return? (6 marks).

iii. For each investment, what is the annual holding period return? (6 marks).

iv. Calculate the standard deviation of the monthly rates of return for each share and the market (9 marks).

v. Using Excel plot your results from (iii) and (iv) above with risk on the x axis and return on the y axis (3 marks).

v. If the 10 year government bond rate is 3.25% and the long term return on the market is 7%, assuming the beta (ß) for CBA is 1.11 and for RIO is 0.95, use the Capital Asset Pricing Model (CAPM) to find the expected returns for CBA and RIO (6 marks).

vi. Construct the Security Market Line (SML) showing where CBA and RIO lie (5 marks).

vii. Based on your findings construct a portfolio made up of 60% CBA and 40% RIO. Calculate the estimated return and ß for this portfolio (4 marks).

viii. Based on your understanding of the CAPM and the SML, which of these asset(s) or portfolio(s) would you invest in and which would you not invest in. Explain your choice (6 marks).

Rationale

This assessment task covers Topics 1 through 5 and has been designed to ensure that you are engaging with the subject content on a regular basis.

The assessment task addresses several of the learning outcomes for the subject including that students:

o be able to evaluate and explain the congruence of accounting, finance and treasury functions;

o be able to explain and critique the objectives of financial management in contemporary organisations;

o be able to critically evaluate mainstream financial theory and concepts;

o be able to demonstrate appropriate communication skills in the context of corporate finance; and

o be able to demonstrate specific technical competencies and skills in utilising quantitative techniques in financial analysis.

Marking criteria

Marking Rubric – ACC515 2017 60 Assessment 2

Learning outcome Marking Criteria High Distinction Distinction Credit Pass

Ability to identify issues in modern finance theory and apply the appropriate finance technique. Understanding of the theoretical issues underpinning financial management. Appropriate and professional referencing of sources. Ability to present your answers neatly, effectively, and appropriately using computers. Correctly identify underlying financial management issues and all of the potential implications of finance data/results and underlying finance theory. Output and recommendations are well researched, logically argued, and well written in a manner that very effectively conveys the key outcomes and recommendations to the end user. All references and sources acknowledged and professionally presented. Correctly identify underlying financial management issues and all of the potential implications of finance data/results. A demonstarted and excellent understanding of finance theoretical perspectives. Output and recommendations are well researched and include well written arguments with references and sources acknowledged and output professionally presented Correctly identify underlying financial management issues and major implications of finance data/results A good understanding of finance theoretical perspectives. Output and recommendations are well written and logically argued with references and sources acknowledged and professionally presented Identify underlying financial management issue and most implications of the reported finance data/results. A solid understanding of finance theoretical perspectives. Written in clear and concise language with references and sources acknowledged and professionally presented Identify underlying financial management issue.Some understanding of theoretical perspectives and capacity to interpret the results of quantitative problem analysis in a manner that adds value to the finance data/results. Academic referencing and fornmatting at an acceptable standard developed for management

Ability to identify type of finance problem and apply appropriate financial management technique to solving problem. Ability to correctly interpret the results of your analyses and to clearly convey your understanding of the results to the end user

Correctly identify underlying financial management problem and identify and use appropriate finance technique to accurately solve problem. High level ability to interpret the results of quantitative problem analysis in a manner that adds value to the data/results. Use of appropriate formulae with no errors. Excellent standard of formatting enhancing the logical presentation of the data output enhancing comprehension by report end users Correctly identify underlying financial management problem and identify and use appropriate finance technique to accurately solve problem. Ability to interpret the results of quantitative problem analysis. Use of appropriate formulae with very few errors. High standard of formatting enhancing the logical presentation of the output which aids understanding by report end users Identify underlying financial management problem and use appropriate finance technique to solve. Capacity to broadly interpret the results of quantitative problem analysis. Use of appropriate formulae with few errors. Consistent formatting that enhances the presentation of the output to improve understanding by report end users Identify financial management problem and solve using appropriate finance technique. Able to interpret the results of quantitative problem analysis. Largely correct use of appropriate formulae. Largely consistent formatting and presentation of the output to meet professional expectations largely identify financial management problem and attempt to solve using appropriate finance techniques. Ability to generally interpret the results of quantitative problem analysis. Mostly correct use of formulae. Acceptable formatting and presentation of the output.

Requirements

As per the CSU Referencing Policy, each assessment item must indicate the style of referencing required for each task. Students should be directed to a single Guide that supports the required referencing style for each assessment task. For those tasks requiring the use of APA, students should be directed to the CSU Referencing website at http://student.csu.edu.au/study/referencing-at-csu

This assignment must be submitted through Turnitin.

It is recommended that your name and student ID are included in the first page and the pages should be numbered.

Further details about submission in Turnitin are provided in online submission.

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