I just need question 1 to question 5. They have mention the word limit for every question please...

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I just need question 1 to question 5. They have mention the word limit for every question please follow that and please submit by deadline. This is my final assignment don't mess it up like last time.

Microsoft Word - FIN80004_2020_S1_TakeHomeExam.docx 1 | P a g e FIN80004: Capital Markets Take-Home Examination Questions Please answer all 6 questions. Each question worth 5 marks. You need to justify your answer with appropriate example in each question. 1. “RBA likely to hold the cash rate at 0.25% till 2023” Bill Evans (Chief Economist at Westpac Banking Group). What are the likely consequences of holding the cash rate at a historically low rate until 2023? In your opinion what will be the next step for RBA to stimulate the Australian economy? Please justify your answer with appropriate examples (350 words). 2. After the GFC many international corporations changed its capital structure and move towards more equity financing than debt financing. How does this capital restructure impact on the risk rating of those corporations in your opinion? Can you provide some examples? (400 words). 3. Explain why bond prices and yields vary inversely. As the market interest is very low across the globe, how does this low-interest rate situation impact bond yield? Draw a diagram and illustrate your answer with a working example. (300 words). 4. Please explain, why convertible securities are more attractive to an investor than simply holding a firm’s preference shares, ordinary shares or corporate bonds? Please justify your answer with an example. In the current market, the situation is it still viable to invest in convertible securities in Australia? Explain. (300 words). 5. What are the major benefits to banks of securitisation? Discuss the process of bank securitization with a diagram. In the current COVID19 environment, do you think bank securitization will give benefit to Australian banks? Justify your opinion. (300 words). 6. You want to buy a house in Melbourne's Northern Suburb. You have already seen some houses and found one particularly impressive house. You are very keen to buy that property. The asking price of that property is $875,000 and after having a successful negotiation you are willing to pay $855,500. Your offer is conditional upon the loan approval within 30 days. The house settlement period will be 60 days. However, after approaching your financial institution (ANZ Bank) you have been given the following information about the loan conditions: You can borrow up to 95% of the property price, however, in that case, you must take compulsory LMI (lenders mortgage insurance) valued $36,166.26 which will be capitalised with the loan amount. Alternatively, you can borrow up to 90% of the property price, and in that case, the LMI will be $17,169.89 which will be capitalised with the original loan. You also need to consider the following conditions before proceeding with the loan contract: i. Loan application fee $855.00 ii. Land transfer fee and stamp duty $25,882 iii. Legal fee $1,200 iv. 1-year rates (council fee) in advance $3,459 v. Fully drawn down fee $890 (capitalised) vi. Valuation fee $350 vii. Settlement fee $980 (capitalised) 2 | P a g e The bank offers you a 5.99% special interest rate per annum. The duration of the loan is 30 years compounded monthly. You believe that this is a good opportunity for you, and you are considering which LMI option to take. (Please show relevant calculations for each question) Required: i. How much do you need to have a deposit to apply for the 95% loan amount? ii. How much do you need to have a deposit to apply for the 90% loan amount? iii. What will be your monthly instalment (end of the month) at 95% loan amount if you want to purchase the property? iv. What will be your monthly instalment (end of the month) at 90% loan amount if you want to purchase the property? v. Under each scenario (i.e. 90% and 95% loan amount) what will be your monthly instalment at the beginning of the month? 5 x 6 = 30 Marks

fin800042020s1takehomeexam-wyswubs1.pdf

Himanshu · Accepted Answer

Ans 1 Cash Rate: The interest rate which banks pay to borrow funds overnight from other banks in the financial markets. If the cash rate is reduced by a central bank, banks are also expected to lower their loan rates and mortgage rates. This means that obtaining a loan could be smoother, and interest prices would become more attractive to borrowers. Higher cash prices, though, may also mean that, when interest rate payments fall in value, you will get lower returns on your investments. If the cash rate is increased by a central bank, borrowing would become more costly and mortgage prices would climb, which is more favorable for the banks and sellers. However, any deposits kept in interest-based accounts will, following the rise in the cash rate, produce larger returns on interest payments. There is a high level of liquidity in the Australian financial market, according to Research Bank Governor Philip Lowe with borrowing costs are at a record low. It a significant national priority to fix the high unemployment rate Reserve bank of governor added. The cash rate will not modify until it moves entirely into full employment. The decision of Holding cash rate by the Reserve Bank of Australia (RBA) simply suggests that RBA supports the current situation of the economy. Economist are expected to lowering the cash rate because of the current pandemic Covid-19, Lowering the cash rate will help individual to get loan very easily, to control the inflation and for growth uncertainty in the country.
Consequences of Holding Cash rate: 
· There will be no change in the return rate on your savings, which indicates that the rate at which you gain on investment earlier will be the same. This would not be going to benefit the investors.
· No change in the borrowing rates for the bank to bank borrowing, bank will pay same Emi as they were previously paying unless bank increases the spread rate on interest rates.
· Good for fixed deposits as bank go slow on cutting interest rates. 
Ans 2 Capital structure leads to the level of money and or capital used by a business to fund its activities and maintain its capital. The financial structure of a company is usually expressed as a debt to equity or debt to capital ratio. Financial restructuring is a structural operation that includes adjusting the balance of debt and equity in the financial structure of a business. It is carried out in order to maximize sustainability or in reaction to a situation such as insolvency, corporate takeover bids or evolving market dynamics. Equity consists of preferred stocks and retained earnings while debt consists of short term and long-term borrowings and portion of interest expense. The capital structure plays a crucial function for any investor, since it is the first move of any investor. With the aid of the capital structure, any investor may determine the amount of risk that any business possess.
· Low Leverage: Asset = Debt + Equity i.e. $ 1000 = Debt $200 + Equity $800
Equity $800
Assets
$1000
Debt
 $200
· High Leverage: Asset = Debt + Equity i.e. $ 1000 = Debt $800 + Equity $200
Equity $200
Assets
$1000
         Debt
 $800
Advantage of Capital structure through equity: 
· No interest payment 
· No mandatory fixed payments 
· Has ownership and control over the business
· Has voting rights
· Provides maximum operational flexibility
· Rate of return is generally high
· Capital structuring through equity will boost the cash flow available to lenders, increases the debt-equity ratio and lowers borrowing costs.
A business typically uses an equity buy-back path when it has excess money. Huge excess capital is used to buy back its own securities and thereby reduce the overall amount of outstanding shares, resulting in higher earnings per share. Share acquisitions can also help to stop takeover attempt attempts.
Disadvantages of Debt:
· Contains restrictions on operational flexibility
· Fixed payment issue
· Low Rate of return 
Ans 3 The price of a bond shows the proportion of the revenue it generates by daily coupon payments or interest payments. When interest rates decline, the valuation of interest rate related liabilities will fall.

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Microsoft Word - FIN80004_2020_S1_TakeHomeExam.docx 1 | P a g e FIN80004: Capital Markets Take-Home Examination Questions Please answer all 6 questions. Each question worth 5 marks. You need to...

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