fina 1




Assignment 1 Assignment 1, which is worth 10 percent of your total grade for the course, is made up of three parts:


Part A consists of seven short-answer and problem-solving questions worth a total of 40 marks.


Part B is a written analysis worth a total of 20 marks.


Part C requires you to submit an outline for your final project (Assignment 4). Part C is worth a total of 10 marks.




Review the “Course Assignments” page in the Welcome and Orientation section of this course website for important information regarding requirements for submitting your answers to problem-solving questions. Include your student ID number and contact information on the top page of your assignment. If you have questions about any portion of Assignment 1, contact the Student Support Centre.




1.       An executive makes so much money per year that the last $50,000 of his income goes almost entirely into his income tax. Under this circumstance, should the executive ask for a stock option of an equivalent amount? What tax benefits could a stock option bring to this executive?




2.       Discuss the role of financial engineering in response to taxation and regulation.






T-Bill Price

Time to Maturity




 91 days




 182 days




 1 year






Given the information on the three treasury bills in the table above, calculate their bond equivalent yields and their effective annual yields. Are their bond equivalent yields different from their effective annual yields? Why or why not? Do treasury bills with the same bond equivalent yields alsohave the same effective annual yield? Why or why not?








No. of Shares

Initial Price

Market Value

Final Price

Market Value



















Suppose that ABC and XYZ are the only companies in this market. Based on the information in the table above, calculate the following:


1. the value-weighted average and price-weighted average at the beginning and at the end.


2. the historical rate of return for ABC and XYZ.


3. the historical rate of return for a portfolio that consists of 500 shares of ABC and 200 shares of XYZ.




5.   Suppose that the current market price of Oxen stock is $50 per share. You expect that the Oxen stock is under downward pressure, and you ask your broker to sell 100 shares short. With a 60% margin requirement, how much short term securities do you need to possess before the short sale transaction can take place? After the short sale transaction, what does your account with your broker look like? What is the margin ratio immediately after the short sale took place? Given a minimum margin requirement of 40%, how far can the Oxen price rise before you get a margin call? At the point of margin call, what does your account with your broker look like? If Oxen did not pay any dividends, what would your rate of return be if you can sell the stock at $30 per share (ignore interest on margin)?




6.   An investor’s portfolio is currently worth $1 million. During the year, the investor sells 2000 shares of Talisman Energy at a price of $50 per share and 1000 shares of Research in Motion at a price of $75 per share. If the Talisman Energy and Research in Motion shares were originally purchased for $45 and $69 per share, respectively, and the investor’s tax rate on capital gains income is 30%, how much additional tax will the investor have to pay as a result of these transactions?





7.   Given the following information about a mutual fund, calculate the NAVPS.


Current market value of the fund’s portfolio of assets



Number of shares outstanding



Unpaid bill for management fees



Unpaid bill for fund auditor’s fees








Part B: (20 marks in total) Write an analysis on the prevailing economic conditions in Canada and globally. Your report must include discussion on common economic indicators, and the analysis should be current to the date of assignment submission. The report should not exceed three typewritten pages and must include a list of the references you consulted. Grammar and spelling account for four of the 20 possible marks, so take time to write and proofread your report carefully




Part C: (10 marks in total) This part of Assignment 1 is very important because it is the foundation of your term project (Assignment 4). You must decide right now between two options, and you are not allowed to switch options part way through the course. Think carefully about your interests and strengths and decide between Option 1 and Option 2.




Assignment 4 Option 1: Term Paper The topic of the term paper must fall in the field of investment. The paper should have a theme, discuss the chosen topic thoroughly, express your original view clearly, and make

Assignment 4 Option 2: Investment Project Imagine you have inherited a large amount of money. You are expected to carry out an investment project detailing your strategy for investing this money and at the end of the project write




Part C of Assignment 1 requires you to indicate whether you have decided to do Option 1 or Option 2 in Assignment 4 and submit either a written outline for your term paper or a written outline discussing your strategy for investing in a windfall. This part of Assignment 1 is worth a total of 10 marks, with two marks allotted to grammar and spelling