This is your class paper assignment, worth 10% of your final grades. You are an assistant to the attorney for the FUN Company. To complete this assignment you must write a two-to-three page report discussing the issues and likely outcome of the case below:Several weeks ago, SAD Co. CEO met with FUN’s CEO for lunch to discuss potential business ventures between both companies. After a few shots of whiskey, SAD’s CEO tells FUN’s CEO that SAD is interested in purchasing a commercial building that FUN owns in a central area in West Palm Beach. SAD is interested in this building because of the specific location in which it is located. SAD believes that owning a building in that specific location will increase their business significantly. SAD’s CEO offers FUN’s CEO to purchase that specific building for $5 million. FUN’s CEO responds that FUN estimates that the building is worth $9 million and that they are willing to sell the building for that price give that they have no use for it. SAD’s CEO takes out a $1.00 bill gives it to FUN’s CEO and says “this is my payment so that you give me time to talk to my board and see if we are willing to pay $9 million.” FUN’s CEO laughs and puts the $1.00 bill in his pocket. Both CEO’s shake hands and say goodbye and leave. The next day SAD’s CEO calls an emergency meeting to discuss the $9 million purchase price and the board agrees to the purchase of the building for $9 million. Immediately after the meeting, SAD’s CEO calls FUN’s CEO on the phone and tells him that SAD agrees to purchase the building for $9 million. FUN’s CEO tells SAD’s CEO that FUN has decided not to sell the building because after their meeting yesterday they realized how much potential the building actually had. SAD is now demanding that FUN honor its word and sell them the building for $9 million

Assessment 2Assignment 2 is worth 20% of total assessment and is marked out of 100. Please show all workings including any formula used.Question 1 (20 marks) (show all workings)This question relates to material covered in the Topic 3 on Financial Mathematics. This question addresses the 6th subject learning outcome.a.A couple wants to accumulate $10,000 by making payments of $800 at the end of each half year into a savings account that earns interest of 10% per annum. Find the number of full payments required and the size of the concluding payment.b.A woman wins $200,000 in a lottery. She takes only $20,000 in cash and invests the balance at a rate of interest of 10% with the understanding that she will receive 180 equal monthly payments, with the first one to be made in 4 years. Find the size of the payments.c.Dr.Ritz has been depositing $4,000 in her savings account every December since 2007. Her account earns 5% compounded annually. How much will she have in December 2017? (Assume a deposit will be made in the year 2017).d.Mary Tune will receive $20,000 every year for the next 10 years as a payment for a new song she has written. If a 6.0% rate is applicable, should she be willing to sell out her future rights now for $150,000?e.Mr. Tomas wants to buy an annuity of $1,000 a year for 10 years that is protected against inflation. The ABC Trust Company offers to sell him an annuity where payments increase each year by exactly 10%. Find the cost of this annuity if the rate of interest is 12% per annum.Question 2 (20 marks)This question relates to material covered in the Topic 1. This question addresses the 1st, 2nd and 3rd subject learning outcomes.Write a short essay of 300 words for each of the following questions. For each question, illustrate your answer with an appropriate example. Describe the ‘maximisation of shareholder wealth’ concept and contrast it with the notion of ‘maximisation of profit’.‘Risk aversion implies that only risk-free investments will be undertaken by corporate managers’. Critically evaluate this statement (indicate whether you agree or disagree in your answer).Question 3 (60 marks)This question relates to material covered in the Topics 3-5. This question addresses the 1st, 2nd and 3rd subject learning outcomes.i.Find the monthly holding period returns for 2016 for Commonwealth Bank (CBA), Rio Tinto (RIO) and the market (MKT) as proxied by the All Ordinaries index. The monthly holding period return is the return you would receive if you bought an asset on the first day of the month (opening price) and sold it on the last day of the month (closing price). Using Excel, graph your % return results on one graph with returns on the y axis and time on the x axis to enable comparison between options. (Use 'Close' rather than 'Adjusted Close' for the selling price) Note: Monthly opening price MUST equal previous month closing price. When calculating return students should use the previous period closing value as the opening value for their next calculation. It is recommended that students use a line graph within the Excel chart options to allow effective comparison of performance between the different securities (15 marks).ii.For each investment, what is the average monthly holding period return? (6 marks).iii.For each investment, what is the annual holding period return? (6 marks).iv.Calculate the standard deviation of the monthly rates of return for each share and the market (9 marks).v.Using Excel plot your results from (iii) and (iv) above with risk on the x axis and return on the y axis (3 marks).v.If the 10 year government bond rate is 3.25% and the long term return on the market is 7%, assuming the beta (β) for CBA is 1.11 and for RIO is 0.95, use the Capital Asset Pricing Model (CAPM) to find the expected returns for CBA and RIO (6 marks).vi.Construct the Security Market Line (SML) showing where CBA and RIO lie (5 marks).vii.Based on your findings construct a portfolio made up of 60% CBA and 40% RIO. Calculate the estimated return and β for this portfolio (4 marks).viii.Based on your understanding of the CAPM and the SML, which of these asset(s) or portfolio(s) would you invest in and which would you not invest in. Explain your choice (6 marks). RationaleThe assessment task addresses several of the learning outcomes for the subject including that students:be able to evaluate and explain the congruence of accounting, finance and treasury functions;be able to explain and critique the objectives of financial management in contemporary organisations;be able to critically evaluate mainstream financial theory and concepts;be able to demonstrate appropriate communication skills in the context of corporate finance; andbe able to demonstrate specific technical competencies and skills in utilising quantitative techniques in financial analysis.