Guidance on how to prepare for the Final Exam
General Guidance:
The textbook contains a wealth of information, but not all of it is examinable. Focus
primarily on the core concepts discussed in lectures and reinforced in tutorials—these
are the ideas most likely to be tested. If a topic isn't covered in the lecture notes, it’s
unlikely to appear on the exam.
For example, across the Week 4–10 lecture topics, some key concepts you should
prioritise include:
Equity Markets II:
-
-
Basic financial ratios and how to calculate them
Dividend imputation, how to calculate tax payable on a dividend, considering
franking credits
How to calculate the price of a share using a dividend discount model (constant
and growing dividend)
How to account for mechanical changes in share price due to:
o Dividend payments
o Rights issues
o Share splits
o Bonus issues
The e icient markets hypothesis in its various forms.
The random walk hypothesis.
Debt Markets I (Short-term Debt)
-
What are the di erent kinds of short-term tradeable securities, and what are their
features (Bank Accepted Bill, P-note etc.)
Calculations on Short-term Tradeable Securities, (Price, Yield, etc..)
Short-term Non-Tradeable Financing Sources (e.g trade credit, bank overdraft etc.)
what are they, and what are their features.
Debt Markets II (Medium to long term debt)
o
Term loans, Mortgage Finance features and structures.
Calculating Loan repayments (ordinary annuity & annuity due)
-
Corporate Bonds: Debentures, Unsecured Notes, and Subordinated Debt, features
and structures.
Corporate bond calculations (Bond pricing at and between coupon dates)
o Pricing corporate bonds using market yields
o Adjustments for timing between coupons
Leasing, benefits and di erent types of leasing contracts.
Foreign Exchange Markets:
-
Di erent types of currency regimes
How to read, interpret and use FX quotations
The role of the FX dealer and the dealer’s spread
How to calculate and interpret forward exchange rates
How to transpose quotes
How to calculate cross rates
To understand what factors influence exchange rates and the direction they
influence them.
Understand currency supply and demand curves.
Futures and Forwards
–
–
–
–
–
–
–
–
–
-
Understand the nature of short positions and long positions
The mechanics of how to close out a position
The role of the exchange
Understand institutional features of how futures are traded, e.g. margin calls,
deposits, marking to market
How to hedge using futures
The risks of using futures contracts
Participants in the Futures Markets
The di erence between FRAs and Futures
How to read and interpret FRA quoutes
How to settle FRAs.
Options
–
–
–
–
–
–
The Di erence between American and European options
The understand the profit profiles of the four basic types of options positions
Calculating Profit or loss on options (in the money/out of the money)
Understand what is meant by intrinsic value and time value of the option.
Factors that determine the price of the option
How to hedge using options – I have provided you with an additional practise
question, under the Week 10 Lecture Materials tab
Option Strategies: Only need to know the hedging strategies and long when to use
long or short straddle.