Question: Question 2 (25 marks) Part A (a) What is market risk? Calculate the fall in value in a $8 million parcel of 60-day money market

Question 2 (25 marks) Part A (a) What is market risk? Calculate the fall in value in a $8 million parcel of 60-day money market securities when the money market yield rises unexpectedly from 5.6% to 5.85%. [10 marks] (b) The Australian Government has issued some 12% Treasury bonds with a maturity of five years and a face value of $100. If an investor's required rate of return is 9% p.a., what price would the investor be willing to pay for these bonds assuming coupons are paid semi-annually? [5 marks] Note: Part A (a) and (b) are independent questions. Show all your workings for each part. Part B (a) What is the coupon rate on a debt security? What is its relevance to the valuation of the security? (Maximum: 400 words) [6 marks] (b) What contributions does the money market make to the financial system? (Maximum: 300 words) [4 marks] Note: Part B (a) and (b) are independent questions. Clear, logical and succinct writing showing creativity and real understanding will be rewarded

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