Part C Insights and Analysis Section. Total 30 marks, 10 marks for each situation.

A.Your uncle is a senior manager in a large listed Australian company. You overhear him talk about the financial results of his company. The profits are higher than expected and have not been disclosed publicly.

(i)Based on your knowledge of finance concepts, what should you do to profit from this "inside" information? (3 marks)

(ii)How does your action depend on the validity of stock market efficiency?(3 marks)

(iii) Examine from an ethical standpoint, whether you should attempt to benefit from this inside information. What risks do you face by trying to exploit your informational advantage?(4 marks)

Wesfarmers has recently announced that they would spin-off Coles into a separate company. Each shareholder of Wesfarmers would get shares in Coles' company based on their current holdings. Wesfarmers' stock prices reacted positively to this announcement.

a.Comment on the motivation of Wesfarmers to spin-off Coles. (5 marks)

b.What can you infer about the efficiency of the Australian stock market based on the stock price reaction? (5 marks)

Recently, one of your uncles passed away, leaving you an inheritance of $500,000. Using this money, you have decided to build a nice house on a piece of land that you already own. You reckon that you don't need this money for another 6 months, since you need to complete substantial amount of paperwork and obtain approvals for building the house. You therefore decide to invest the $500,000 for a period of six months. You choose the security to invest in based on liquidity, maturity, risk, and return.

a.Comment on the suitability of the following assets for investing your $500,000: commercial real estate, equity-based mutual fund, Telstra stock, money market mutual fund, bank fixed deposit. Justify your answer. (5 marks)

b. How would your choice in a) above change if you don't need the money for another 10 years. (5 marks)