Question 1 [10 marks]

Peter buys a 180-day bank bill with a face value of $500 000 at a yield of 2.9% p.a. (simple interest). After 92 days he sells it at a yield of 3.2% p.a. (simple interest). a. [7 marks] Draw a fully labelled cash flow diagram (from Peter's perspective) that describes Peter's purchase and sale of the bank bill. b. [3 marks]What is the value of yield (simple interest) that Peter earned on this transaction? Include carefully detailed working with your solution.

Question 2 [10 marks]

Anthony is trying to convince me to invest in his face mask production factory. He claims that a investment of $100 000 today will generate a $300 000 pay off in five and a half years' time. What annual rate of compound interest is Anthony promising me? Give your answer to two decimal places. Include a fully labelled cash flow diagram (from Anthony's perspective) in your solution. Also include your equation of value, and full working.

Question 3 [10 marks]

Your broker has just sent you details of a new share offer in a hand sanitiser business. She has indicated that the business just paid its annual dividend of $2.24 per share. She believes dividends are expected to grow at 2% p.a. a. [6 marks] If you wish a return of 6% p.a. on your investment, what is the maximum price you would be willing to pay for each share? b. [4 marks] Your broker tells you that the business has priced its shares at $142. What annual rate of growth does the company expect its dividends to grow at? (Assume a market valuation rate of 6% p.a.; give your answer to two decimal places.) Include with both answers a fully labelled cash flow diagram (drawn from the company's perspective), your chosen valuation date and equations of value. 1 ACST2001 Financial Modelling Take-home quiz 1 S1 2020 Please turn over

Question 4 [10 marks]

A 6-year 4% p.a. Treasury bond (coupon payable half-yearly) is available for purchase at a market yield to maturity of j2 = 2% p.a. a. [6 marks] Find the bond's price (per $100 face value, rounded to three decimal places) at this yield. Include in your answer a fully labelled cash flow diagram (drawn from the perspective of the bond issuer), your chosen valuation date and an equation of value. b. [4 marks] Find the bond's price (to three decimal places) 42 days prior to the bond's maturity at a nominal annual yield one hundred and twenty basis points higher than the yield given above. Again, include in your answer a fully labelled cash flow diagram (drawn from the perspective of the bond purchaser), your chosen valuation date and an equation of value.

Question 5 [20 marks]

Benjamin and Stephanie's mother/mother-in-law, Suzy, issued a $1 000 000 twenty-five year interest-only loan to the couple. Under the terms of the loan, they make annual payments of interest every year (at 3% p.a.); the final payment will consist of the regular interest amount together with the return of principal. Unbeknownst to the couple, Suzy has invested each interest payment at 3.5% p.a. Her intention is to give the accumulated amount to the couple when the loan matures. Allowing for this gift, what is Benjamin and Stephanie's net payment to Suzy when the loan matures? Include in your answer a fully labelled cash flow diagram (drawn from the perspective of Suzy's investment fund), your chosen valuation date and an equation of value. 2 ACST2001 Financial Modelling Take-home quiz 1 S1 2020 Please turn over

Question 6 [20 marks]

Strata committee SP666 has resolved to accumulate a sum of $1 000 000 in ten years' time in order to pay for building repairs. Quarterly payments (in advance) will be made over the ten years, commencing immediately. SP666 has secured a return on its investment for the first five years of j2 =2% p.a. and for the second five years of j2 =3% p.a. What amount does SP666 have to pay each quarter? Include in your answer a fully labelled cash flow diagram (drawn from SP666's perspective), your chosen valuation date and an equation of value.