Financial markets homework help

BCO224 FINANCIAL MARKETS – Task brief & rubrics

  • The assignment consists of 3 questions and 4 exercises
  • Concepts included are in UNIT 1 to 6
  • The final assignment will be accepted in WORD format ONLY. It is mandatory to submit an EXCEL file where you explain the different calculations you made. So, both files have to be submitted.
  • Calculation results HAVE TO be explained and the calculation steps explained


  1. Assume that the following banks have the same net amount of 2 million, but they are different due to the capital structure:


Reserves 120 Deposits 850
Loans 900 Bank Capital 170
Total assets 1020 Total Liabilities and Equity 1020


Reserves 120 Deposits 1000
Loans 900 Bank Capital 20
Total assets 1020 Total Liabilities and Equity 1020


  1. Which Bank is more attractive for shareholders?
  2. Which bank is riskier in case of loan depreciation at 20 million? Show your calculations to support your suggestions.


  1. Could you define what is the yield curve?
    1. What are the three main theories that attempt to explain the yield curve?
    2. What does it mean an inverted yield curve? How does it compare to a normal yield curve?


  1. Briefly explain what would happen and why:
    1. Suppose that price levels in Indonesia rise by 20% relative to price levels in the Eurozone countries and that the purchasing power parity theory holds. How would this affect the value of the Indonesian rupiah relative to the euro?
    2. If the British central bank prints money to reduce unemployment, what will happen to the value of the pound in the short run and the long run?
    3. Due to increasing wealth, what would happen to the value of the Singapore dollar if Singaporeans significantly increased their consumption of foreign goods and services as compared to locally produced goods and services?


  1. Suppose there are two bonds you are considering:


  Bond A Bond B
Maturity (years) 20 30
Annual Coupon rate (%) 12 8
Par Value 100 100


  1. If both bonds had a required rate of return of 10%, what would the bonds’ prices be?
  2. Re-calculate the prices of the bonds if the required return falls to 9%. Could you explain why the price increases or decreases given this change in required return?


  1. Calculate the NAV of the following fund, assuming 3,500 shares are outstanding. Calculate the percentage change in the NAV of the fund if stock C climbs to $33.41.


Stock Shares owned price
A 500 $5.74
B 6,000 $65.10
C 3,000 $12.04
Cash n.a. $4,368.40


  1. Will the NAV increase or decrease? Why?
  2. Calculated your return on your investment given the change in NAV


  1. Suppose the Swiss Franc is currently traded at SFR 1.40/$. The British Pound is traded at GBP 1.39/$. Ignoring transaction costs:
    1. Determine the SFR/GBP exchange rate consistent with these direct quotations.
    2. Suppose the SFR/GBP cross rate in the market was at SFR 1.05/GBP. Is there any arbitrage opportunity?


  1. Consider the following three stocks:
  • Stock A is expected to provide a dividend of $10 a share forever
  • Stock B is expected to pay a dividend of $5 next year. Thereafter, dividend growth is expected to be 4% a year forever.
  • Stock C is expected to pay a dividend of $5 next year. Thereafter, dividend growth is expected to be 20% a year for 5 years (until year 6) and zero thereafter.
  1. If the market capitalization rate for each stock is 10%, which stock is the most valuable?
  2. What happens if the capitalization rate drops to 7%? Explain
  3. Assume EPS for stock A is 5, Stock B 7, and Stock C 20. Calculate the P/E ratio for each. Briefly explain what the different values mean to you.



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