Assume that you have $10,000 to invest in a term deposit. In this situation, explain which of the three (3) deposits listed below (a. – c.) you would select if the selection strategy is totally depend...

Accounting
Problem & Solution
    Term Deposit Rate Calculation
    A
    B
    C
    Amount
    10250
    10390
    10420
    Days
    90
    130
    145
    Principal
    10000
    10000
    10000
    Rate
    25%
    37%
    41%
Principal Amount of Deposit = $10000
Rate of Interest = Amount ÷ (Principal * 365/ Days)
A: ROI = 10250 ÷ (10000 * 365/ 90) = 25%
B: ROI = 10390 ÷ (10000 * 365/ 130) = 37%
C: ROI = 10420 ÷ (10000 * 365/ 145) = 41%
Since the term deposit needs to be chosen with the higher percentage selection strategy, therefore we will select option ‘C’ since it carries the highest rate of return i.e. 41% on the deposit of $10000 held for a time period of 145 days.
Q.1 Five (5) principal functions of a modern and efficient stock exchange
The efficient stock market is one which reflects all relevant information which is already incorporated in the prices and there is no way there can be a situation of under or over valuation of stock (Eugene Fama, 1970). But despite this there is no clear definition to precisely measure or perfectly define the efficiency of the market. Yet, Eugene Fama inspite of such limitations stated that there is hardly any way the investors can outperform the market and since the market will be arbitraged anyway there should not be any anomalies in existence. The five principle functions of a modern and efficient stock exchange in most of the developed as well as in the developing countries are as follows:
1. The establishment of security market with a range of financial instruments: This includes the new issue or the primary stock market as well as the secondary mark where the equity or the ordinary share capital, preferences shares, subordinated debt during bankruptcy and the convertible bond or notes in the form of listed debt instruments are traded. It also deals with derivatives in the form of warrants, future and options.
2. It helps to afford a security trading system: Almost all the stock exchanges barring a few have implemented a state of art infrastructure for online and electronic trading system. The Australian stock exchange, New York stock exchange, NASDAQ in the developed countries like Australia and United States and Bombay Stock Exchange...