Fundamentals of Finance Group Assignment

Learning Outcome Details -

• Describe, analyse and apply key financial concepts, including the importance and functions of finance in business organization; time value of money; Australian monetary system; risk-return measurement and tradeoff in terms of individual asset and portfolio; Australian financial system, as well as global financial markets.
• Utilize tools and technology, such as basic algebra, Microsoft Office software and internet resources, to collect, evaluate and organize financial information.
• Conduct academic and practical analysis on real-world financial issues and supply feasible solutions based on processed information.

Assignment Questions -

Suppose today is 10 July 2017. After completing a Bachelor of Science (Honours) in Beacon University, Jason accepted an offer from a domestic investment bank in April 2017 and has been working as a financial modelling analyst in the quantitative research desk since 1 July 2017. Although specialized in computer programming, Jason has limited knowledge about finance. Recently, Jason has a few queries about the financial matters and asks for advice from you, a junior equity analyst.

Question 1: Time Value of Money

At the moment, Jason is sharing accommodation with friends. Because the Australian housing market has experienced exuberant growth in recent years, Jason decides to buy his first residential property in 5 years (July 2022). Currently, the median price of a 2-bedroom unit in his desired suburb is $550,000. Historical data suggest the median unit price in the same suburb has grown by, on average, 3.39% per annum since 2008. Jason believes this growth rate will continue for the next five years.  Jason has accumulated $30,000 (as of 30 June 2017) in his saving account which pays 2.4% p.a. interest, compounded quarterly. Jason plans to deposit $7,500 into this saving account at the end of each quarter, starting from 30 September 2017. On 30 June 2022, Jason will use the outstanding balance of this account as the down payment.

The same bank offers fixed-rate 25-year mortgage loan and requires monthly instalment. If the amount of mortgage loan is more than 80% of the property value, mortgagees have to purchase insurance, a one-off payment of $5,000. Mortgagees are allowed to curtail their loan duration by lodging additional monthly repayment. Jason expects mortgage rate to reach 7.2% p.a. in 2022. His first instalment will be paid at the end of July 2022. Jason's property purchase in five years should be eligible for stamp duty exemption. Other transaction costs, such as conveyancing service and bank fees, is estimated to be $2,000 in five years.

For simplicity, the median unit price and mortgage loan amount in five years are rounded UP to the nearest thousand, that is, $342,194 is rounded to $343,000.

a. Will Jason have to pay mortgage insurance in 5 years?

b. How much is Jason's monthly mortgage instalment if he plans to pay off the mortgage in exactly 25 years?

c. After reviewing his monthly budget, Jason is confident that he can afford $4,600 monthly mortgage payment. How long, in terms of months, will Jason pay off the mortgage?

Question 2: Corporate Governance and Financial System

Jason's grandfather gave him some shares as gifts when he graduated. One of these shares is Commonwealth Bank of Australia (CBA.AX). Jason read some news headlines about CBA's recent scandal and come across phrases like 'corporate governance' and 'money laundering'. Compose a short essay to address the below issues (within the word limit).

a. Briefly explain CBA's recent scandal, including what happened, how the authority, CBA management and investors responded to the scandal, and etc.

b. What is 'corporate governance'? Do you think whether CBA's board of directors, CBA's senior management or both should be responsible for the incident?

c. What is 'money laundering'? How does money laundering affect financial system, especially the financial institutions? Are you aware of any other channels which facilitates money laundering without going through the current financial system?

Need help with Question 1 (a) and Question 2 in 1200 words.

Attachment:- Assignment Files.rar