GB30703 Group Assignment Set1

Universiti Malaysia Sabah Labuan International Campus Labuan School of International Business and Finance GB30703 Money and International Capital Market Semester 1, 2011/2012 GROUP ASSIGNMENT EVALUATION FORM (20%) Instruction: 1. A group of 5 members only to complete this group assignment. 2. Students must fill in Part A and submit the Group Assignment Evaluation Form together with the Assignment. Fail to submit the Evaluation Form will be graded as Zero marks. 3. All answers must be printed using word processor. 4. Plagiarism is strictly discouraged. Zero mark will be given to any work suspected of involving in plagiarization. 5. Deadline: 2/11/2011 (Wednesday) 3.00 PM Lecturers Office Room 1037. Part A - Fill in by Students: NO 1 2 3 4 5 NAME MATRIK NUMBER HP NUMBER

Part B Fill in by Examiner: Questions Chapter 1 25% Chapter 6 25% Chapter 9 25% Chapter 16 25% Total (100%) Marks (%) Remarks

Marks for Group Assignment = Total Marks (Part B) x 20% = ___________________________

GB30703 Group Assignment Set1

Chapter 1 A. Can you distinguish between the following institutions? Money market versus capital market Open market versus negotiated market Primary market versus secondary market Spot market versus forward or futures market Chapter 6 A. Suppose a 10-year bond is issued with an annual coupon rate of 8 percent when the market rate of interest is also 8 percent. If the market rate rises to 9 percent, what happens to the price of this bond? What happens to the bonds price if the market rate falls to 6 percent? Explain why? Chapter 9 A. Suppose a top-quality firm with an A-1 or AAA credit rating can borrow at a fixed coupon rate attached to its bonds of 12 percent. Moreover, this firm's bank is willing to extend it a LIBOR-based loan at a rate of 9.5 percent that will change weekly as LIBOR moves. Working through its principal banker, this toprated company makes contact with a firm whose credit rating is considerably lower (rated only BB). The lower-rated firm has been informed by its investment banker that it probably could sell bonds at a 14 percent coupon rate, and the finance company from which it receives short-term money has promised a LIBOR-based floating-rate loan of 11.25 percent. Could these two firms benefit from a swap under the interest rates given above? Which firm would save the most, and under what circumstances? Will the company with the lower credit rating have to offer the top-credit-quality firm an added inducement to participate in a rate swap? What inducements could be used to equalize the interest savings for both parties? Chapter 16 A. The manager of a life insurance company is trying to decide what annual premium to charge a group of policyholders, each of whom has just reached his or her 40th birthday. A check of mortality tables indicates that, for every million persons born 40 years ago, 3 percent die, on average, sometime during their 40th year. If the company has 10,000 policyholders in this age bracket and each has taken out a $50,000 life insurance policy, estimate the probable amount of death benefit claims against the company. How much must be charged in premiums from each policyholder just to cover these expected claims? Suppose the company has operating expenses (plus a target profit) on policy sales to these policyholders of $500,000. What annual premium must be charged each policyholder to recover expenses and meet expected benefit claims