What factors caused the Global Financial Crisis? Describe three factors in

detail. (You need to reference at least 2 sources in your discussion and

use your own words) (15 marks) 

Outline two important functions that the financial system performs in the

economy. Why is the smooth functioning of the financial system important

to the economy? (10 marks)

b) What are some of the dangers and incentive problems of the financial

sector getting “too big”? (6 marks)

3. The Commonwealth Bank issues bonds on the capital market to raise

financing for its loans.

a) How much financing will the Commonwealth Bank raise if it issues 500 5-

year bonds today that pay an annual coupon of 6% and have a face value

of $1000 if yields on bonds of similar risk and maturity are 4%? (6 marks)

b) What will happen to the price of the bonds in a) if 1 year from now the

credit rating of the Commonwealth Bank is increased from AA to AAA?

Why? (4 marks)

c) How much would an investor pay for the the bond from a) 1 year after it

was issued if yields on bonds of similar risk and maturity had gone down

to 3% by that time? (8 marks)

Apple Inc. (APPL share code) issues bank bills on the money market to

raise short-term financing for its operations. How much financing would

Apple raise if it issued a bank bill that has a maturity of 180 days, a face

value of $50 million and was issued at a rate of 5%? The acceptance fee

is 50 basis points. (8 marks)

5. The ANZ Bank (Share code: ANZ.AX) expects to pay a dividend of $0.91

today and dividends are expected to grow at 6% forever. The required

return on ANZ shares is 9%. Based on this information would you buy the

share today? (Base your answer on current market data for ANZ shares)

(8 marks)

Do not forget to include a reference list for any sources apart from lectures or

tutorials. You also need to include in text references. See referencing guide on the

portal for more information. Both of these will count for 5 marks

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