Tut Test 1

BANK1005 Financial Markets and InstitutionsTAKE-HOME TEST SP 2, 2015ANSWER SHEETSPage 5 of 4

Take-Home Test SP2, 2015ANSWER SHEETSCourse NameBANK 1005 - Financial Markets and Institutions

Student ID

Surname/Last name Given name(s)/First name

Please record the make and model of your financial calculator hereMakeModel

Tutorial session you normally would attend or are enrolled inDay of weekTimeRoom

Deadline: Test available Wednesday, 08 April 2015 at 10.00 amTest due Thursday, 09 April at 14.00 (02.00 pm) Adelaide time according to UniSA systemsAim for 12.00 noon as no late submissions will be accepted.Read the instructions on the Take-Home Test document.Submission of these Test Answer Sheets1. These Test Answer Sheets are provided separately in Word format for you to type your answers. You can expand (or reduce) the areas provided on these sheets, if needed but the spaces provided should be adequate for your answers.2. Submit your Test Answer Sheets, as ONE DOCUMENT, in PDF format which will best maintain your formats using the Gradebook/Learn-online facility. (Word format will be accepted in the rare case that you are unable to do the conversion but your document will be marked with the formatting as it can be printed and/or viewed by the marker). To convert a Word document to PDF, simply save your document as a PDF file. This facility is available in Microsoft Word (as a part of the Save As Type function).No direct submissions to the lecturer or tutors will be accepted and any such submissions will not be marked.A cover sheet is NOT required.3. Do NOT submit the Take-Home Test paper. Do NOT include the questions in the Test Answer Sheets submit your answers only.4. By submitting these Answer Sheets with your name/ID, you will be deemed to acknowledge that this is entirely your own work and no assistance was sought from any other person in any form.5. Type your name and student ID number in the box on the top page of the Test Answer Sheets. In addition, insert your full name and student ID in the footer of these Test Answer Sheets - an example of the footer, if one is needed, is the footer on these Test Answer Sheets.Identify your tutorial session in the box at the top of this page show the day and start time.6. Extensions, re-marking and re-submissions are NOT available for this assessment.7. Any questions about this test will not be answered as this work is for you to do on your own. So, please work with what you have been presented here in the best way that you can. Assistance from the tutors, lecturer and Help Desk is NOT available.BANK1005 Derivatives and Securities MarketsPage 0 of 9TAKE-HOME TEST SP 5, 2013TAKE-HOME TEST SP 5, 2013

YOUR NAME: HarjapID: YOUR NAME: ID: SECTION ONEMULTIPLE CHOICE QUESTIONSType the letter that corresponds to your choice of the best answer for each question in the answer box below next to the respective question number.Question NumberYour Answer

1D

2B

3D

4E

5B

SECTION TWOSHORT QUESTIONSQuestion 1(a) Dividend yieldDividend Yield = Dividends per share/Initial Price = (1722.7/1248.0)/35.66 = 3.87%

(b) P/E ratioEarnings per share = 2458.4/1248 = $1.97 per shareP/E = Price per share/Earnings per share = 35.66/1.97 = 18.10

(c) Market capitalisationMarket Capitalization = Current Stock price x Shares outstanding Market Capitalization = 35.66 x 1248 = $44503.68 m

Question 2Part A

The market for any particular stock is found to be liquid when the shares can be quickly sold and hence, the act of selling has not that much influence on the price of stock. However, there are many factors that can assist in a positive shift in the stocks liquidity. The first one can be related to inflation which leads to a positive valuation of the stock and hence it will lead to low multiples. Another general factor according to me would be the belief in the intrinsic stock value as this would results in such transactions that would include executive insider transactions. They are often driven or prescheduled by a portfolio. With the above two mentioned factors, it can be said that when there is an inflation, then it is an obvious fact that the price of shares would go up and hence it would definitely result in the market liquidity. More than this, when there is a self belief in the nature of the stock that the price will rise later onward, then the buyer will not take much time in buying it and hence, this could also lead to buying and selling of the stock quickly.

Question 2Part BThe relationship between owners and management of the company in context of the company can be described in such a way that managers have the responsibility to drive the shareholders value and maximize their wealth. However, shareholders invest their funds within the company and expect a high yield from their investment. But the managers working there pretend to work for the benefits of the shareholders and in reality, they work for their own personal interests and benefits. An example of this can be related to the fact that there are several conflicts of interests that can influence the decisions of managers to act in the interests of shareholders and the management can buy other companies to expand power which is an example. The managers could manipulate financial figures while venturing onto fraud so that bonuses can be optimized along with stock price related options. The advocates of the governance should generally encourage the corporations to give priority to the rights of shareholders and assist shareholders as to learning how and where the rights could be exercised. Transparency and disclosure are interwined with such objectives and goals.