T9 EIC 5 (Tutorial)

Dylan is thinking of investing in the money market and Sophie is interested in the bond market.

Melbourne Co. is offering commercial paper for 90 days with a face value of $100,000. It is also offering 10-year, $1mil face value bonds that pay a coupon of 7% annually.

Sophie has a YTM of 8% p.a. while Dylan has a YTM of 4% p.a.

The price Sophie and Dylan are willing to pay for their investment is…

(select all correct answers only, selecting the wrong answer will result in a mark penalty. selecting all answers will result in 0)

T9 EIC 3 (Lecture)

Woolworths decides to finance an

investment project with a bond issue.  

As a prospective buyer, you require a YTM of 6%. What price will you pay for each bond?

T9 EIC 2 (Lecture)

Which of the following debt security characteristics determiner by the bond issuer only?

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T9 EIC 4 (Lecture)

In the latest debt auction for Australian Government Bonds, the following bids are tendered:

Bid 1: $20M at 4.35% YTM

Bid 2: $15M at 4.15% YTM

Bid 3: $30M at 4.5% YTM

Bid 4: $5M at 4.25% YTM

If the Australian Government wishes to raise $20M from this debt issuance, which bids will be selected?

(select all correct answers only, selecting the wrong answer will result in a mark penalty. selecting all answers will result in 0.)

T9 EIC 1 (Lecture)

When a business seeks debt finance, issuing debt securities (e.g. bonds) tend to be a cheaper form of

finance than borrowing a bank loan (e.g. term loan), holding all else equal because...

Jill continues ...

" Now that we know the balance after 5 years, I'm concerned that interest rates may go up by then, because our rate of 4% is fixed for that long. How much will I need to repay every month if my mortgage rate increases by 50 basis points after fixed rate term expires? "

Hint: You may assume that the banks will pass on the full increase in cost of funds from the RBA to their customer loans. 

When you enter in the loan PV, enter it in as a -tive to satisfy the calculator convention.

Enter your answer without $ and to 2 decimal places

After satisfying their Superannuation questions, you move the conversation back to their intended home loan.

The fully amortising home loan Bob and Jill were discussing was for 80% of a $1 mil house, at 4% interest p.a., paid monthly over 30 years. The monthly payments were solved as $3,819.32.

Jill chimes in ...

"After 5 years, I may consider making some changes to the terms of the loan. What is the mortgage balance remaining?"

Enter your answer without $ and to 2 decimal places.

Bob and Jill look at each other and say ... "What if we want the $100,000 at the beginning of the year instead of at the end? Can you calculate how much we'll need instead?"

You make an adjustment to your calculations and inform them of the new balance needed.

Enter your answer as to 2 decimal places, without any $ or ,

e.g. if you answer is $2,888,888.1212 it is to be entered as 2888888.12

Continuing on from your EIC questions ...

Bob and Jill look at each other and say ... "OK, we now understand why super is mandatory and so important."

"Lets start talking retirement. I want to have $100,000 at the end of each year, to spend every year from when I retire at age 67 for 20 years. I don't think I'll be around past then. How much will I need to have in Super when I retire?

Bob has just presented you with a common but sophisticated question that many retirees ask. 

When Bob retires, he wishes to take out his money, ending his super fund. You are quite confident that there are products that will pay 3% p.a. on Bob's Super lump sum when he retires. There are annuity investment products in the market to cater for needs just like this, offered by investment companies, like Challenger. (https://www.challenger.com.au/). These annuity products are purchased upon retirement and pay a fixed sum each year for a fixed time, to simulate an income/wage.

Time for you to crunch the numbers and give Bob his answer...

Hint: What Bob wants, a fixed payment, paid regularly for a fixed time, is an annuity. ID the correct annuity formula, and like your mortgage math, ID which variable you are solving for and then the values for the remaining others. See staff in consults if you need help.

Enter your answer as to 2 decimal places, without any $ or ,

e.g. if you answer is $2,888,888.1212 it is to be entered as 2888888.12

T8 KCT 8 (Tutorial)

Using the share information about Victoria Co. from KCT 5, and given that capital creditors of Victoria Co. are paid 14%, which of the following statements are TRUE?

(select all correct answers only, selecting the wrong answer will result in a mark penalty. selecting all answers will result in 0)