Diploma Financial Planning Module 2: Investment & Planning Task

This assignment focuses on the fundamentals of investment theory and its application within financial planning. It requires the use of Excel to demonstrate asset allocation through pie charts and calculate a portfolio's weighted return. The assignment also explores the time value of money concepts in financial planning modeling, including present and future values of lump sums and annuities. Loan affordability ratios and mortgage stress are analyzed using time value of money methodologies. Furthermore, it covers analyzing and valuing investments using ratio analysis and different research methodologies like bottom-up and top-down analysis. The assignment also touches upon income and growth-oriented investment options and the use of derivative contracts, specifically futures and options, for risk management. It is a comprehensive assessment of the student's understanding of investment principles and their practical application in financial planning scenarios.

DFP Module 2 Assignment 1505
Diploma of Financial Planning
Module 2 Assignment
Submission Instructions:
Key steps that must be followed:
1. Please complete the Declaration of Authenticity at the bottom of this page.
2. Once you have completed all parts of the assessment and saved it (eg. to your
desktop computer), login to the Monarch Learning Management System (LMS) to
submit your assessment.
3. In the LMS, click on the file ”Submit DFP Module 2 Assignment” in the Module 2
section of your course and upload your assessment file/s by following the
prompts.
4. Please be sure to click “Continue” after clicking “submit”.This ensures your
assessor receives notification – very important!
Declaration of Understanding and Authenticity *
I have read and understood the assessment instructions provided to me in the Learning Management System.
I certify that the attached material is my original work. No other person’s work hasbeen used without due
acknowledgement. I understandthat the work submitted may be reproduced and/or communicated for the purpose
of detecting plagiarism.
.
Student Name*: Date:
* I understand that by typing my name or inserting a digital signature into this box that I agree and am bound by the
above student declaration.

DFP Module 2 Assignment 1505
Units: FNSINC401, FNSINC501, FNSASICT503, FNSASICW503, FNSASICV503, FNSFMK502, FNSFMK503, BSBITU402, FNSFPL506
Important assessment information
Aims of this assessment
This assessment covers the fundamentals of investment theory and application. The use of
excel spreadsheets is required to express an asset allocation in a pie chart context, with
inclusion of labels and percentages. Excel is also used to calculate a portfolio’s weighted
return. Relative and absolute cell references are also addressed. The time value of money
is covered, with specific reference to how the concepts are applied in a financial planning
modelling context. Different modelling scenarios cover the use of a present value of a lump
sum, the future value of a lump sum, the present value of an annuity and future value of
annuity to model certain advice scenarios. Loan affordability ratios and mortgage stress
are explored using time value of money methodologies. Analysing and valuing investments
using ratio analysis such as earnings per share is covered. Different types of research and
valuation methodology for investments including bottom up and top down analysis is also
addressed. Income and growth oriented investment options are canvassed, as are the use
of derivative contracts in order to manage risks. Futures and options contracts are explored
in this regard.
Marking and feedback
This assignment contains 5 assessment activities each containing specific instructions.
This particular assessment forms part of your overall assessment for the following units of
competency:
 FNSINC401
 FNSINC501
 FNSASICT503
 FNSASICW503
 FNSASICV503
 FNSFMK502
 FNSFMK503
 BSBITU402
 FNSFPL506
Grading for this assessment will be deemed “competent” or “not-yet-competent” in line
with specified educational standards under the Australian Qualifications Framework.

DFP Module 2 Assignment 1505
Units: FNSINC401, FNSINC501, FNSASICT503, FNSASICW503, FNSASICV503, FNSFMK502, FNSFMK503, BSBITU402, FNSFPL506
What does “competent” mean?
These answers contain relevant and accurate information in response to the question/s
with limited serious errors in fact or application. If incorrect information is contained in an
answer, it must be fundamentally outweighed by the accurate information provided. This
will be assessed against a marking guide provided to assessors for their determination.
What does “not-yet-competent” mean?
This occurs when an assessment does not meet the marking guide standards provided to
assessors. These answers either do not address the question specifically, or are wrong from
a legislative perspective, or are incorrectly applied. Answers that omit to provide a
response to any significant issue (where multiple issues must be addressed in a question)
may also be deemed not-yet-competent. Answers that have faulty reasoning, a poor
standard of expression or include plagiarism may also be deemed not-yet-competent.
Please note, additional information regarding Monarch’s plagiarism policy is contained in
the Student Information Guide which can be found here:
http://www.monarch.edu.au/student-info/
What happens if you are deemed not-yet-competent?
In the event you do not achieve competency by your assessor on this assessment, you will
be given one more opportunity to re-submit the assessment after consultation with your
Trainer/ Assessor. You will know your assessment is deemed ‘not-yet-competent’ if your
grade book in the Monarch LMS says “NYC” after you have received an email from your
assessor advising your assessment has been graded.
Important: It is your responsibility to ensure your assessment resubmission addresses all
areas deemed unsatisfactory by your assessor. Please note, if you are still unsuccessful in
meeting competency after resubmitting your assessment, you will be required to repeat
those units.
In the event that you have concerns about the assessment decision then you can refer to
our Complaints & Appeals process also contained within the Student Information Guide.
Expectations from your assessor when answering different types of assessment questions
Knowledge based questions:
A knowledge based question requires you to clearly identify and cover the key subject
matter areas raised in the question in full as part of the response.

DFP Module 2 Assignment 1505
Units: FNSINC401, FNSINC501, FNSASICT503, FNSASICW503, FNSASICV503, FNSFMK502, FNSFMK503, BSBITU402, FNSFPL506
Skill based questions:
Where you are asked to write as though you are speaking to a client, your answers must
show your ability to:
 understand your client’s concerns/perspective/views
 show empathy
 display a professional response
 explain ideas clearly and simply so your client can understand the issues
Good luck
Finally, good luck with your learning and assessments and remember your trainers are here
to assist you 

DFP Module 2 Assignment 1505
Units: FNSINC401, FNSINC501, FNSASICT503, FNSASICW503, FNSASICV503, FNSFMK502, FNSFMK503, BSBITU402, FNSFPL506
Assessment Activity 1
Project
Balanced Funds Comparison
Activity instructions to candidates
 This is an open book assessment activity.
 You are required to read this assessment and answer all 10 questions that follow.
 Please type your answers in the spaces provided.
 Please ensure you have read “Important assessment information” at the front of this
assessment
 Estimated time for completion of this assessment activity: 3 hours

DFP Module 2 Assignment 1505
Units: FNSINC401, FNSINC501, FNSASICT503, FNSASICW503, FNSASICV503, FNSFMK502, FNSFMK503, BSBITU402, FNSFPL506
Background
Your client is considering investing $50,000 in one of 2 funds offered through BCG, a notable investment
fund manager. One fund under consideration is the BCG Balanced Fund which has the following asset
allocation.
Cash 10%
Fixed Interest 15%
Listed Property 20%
Australian Shares 35%
International Shares 20%
The alternative fund is the BCG Growth fund which has the following asset allocation:
Cash 3%
Fixed Interest 7%
Listed Property 15%
Australian Shares 45%
International Shares 30%
From your research you have also been able to determine the average returns that these funds have
generated in the past three years for each asset class. The returns have been:
Cash 4.00%
Fixed Interest 6.00%
Listed Property 8.00%
Australian Shares 9.50%
International Shares 7.30%
At your next client meeting you have decided to present to your client an excel spreadsheet that shows
the overall weighted return that would have been received by investors in the BCG Balanced Fund
compared to returns that would have been received by investors in the BCG Growth Fund, over the
previous three years. You will also show a visual representation of the asset allocation by including a pie
chart for each fund. (In Appendix 5 of Module 2 are tips to help you with excel.)
Please save all parts to this assessment activity and upload these to the LMS when submitting your
assignment for grading.

DFP Module 2 Assignment 1505
Units: FNSINC401, FNSINC501, FNSASICT503, FNSASICW503, FNSASICV503, FNSFMK502, FNSFMK503, BSBITU402, FNSFPL506
Required:
1) Using excel, and the data provided on the previous page, open a new spreadsheet in excel and
replicate the spreadsheet below where you will see the format we require. Show the asset
allocation, returns and weighted returns for both the BCG Balanced fund and the BCG Growth
fund. (Save the spreadsheet for submission.)
 Ensure that formulae are used in the excel spreadsheet to find the ‘Total’ asset
allocation of 100% .
 Use formulae in the excel spreadsheet to calculate the weighted returns for each funds.
 Use formulae in the excel spreadsheet to calculate the total weighted return for each
fund.

DFP Module 2 Assignment 1505
Units: FNSINC401, FNSINC501, FNSASICT503, FNSASICW503, FNSASICV503, FNSFMK502, FNSFMK503, BSBITU402, FNSFPL506
2) Create a pie chart for each fund showing the asset allocation of each fund.
 Include a legend showing which asset class each colour represents
 Include data labels on the pie charts to show the actual percentages allocated to each
asset class
 Include a title for each fund
3) Write the formula in the box below that you used in the cell that gives the Total as being 100%
(cell C8)
=C3+C4+C5+C6+C7
4) Write the formula in the box below that you used in the cell that gives the weighted return for
Cash in the BCG Balanced Fund (cell E2)
=SUMPRODUCT(C4,D4)/C8
5) Write the formula in the box below that you used in the cell that gives the Total weighted return
for the BCG Growth Fund (cell E22)
SUM(E3:E7)
6) When looking at a cell reference, how do you know if the cell is a “relative” cell reference in
excel or an ‘’absolute” cell reference in excel? Remember, you can google or youtube this, in
addition to the notes we have provided in Appendix 5 if you need additional help.
There are two kinds of cell references namely relative and absolute. Relative and absolute
references act differently when copied and filled to other cells. Relative references alter when a
formula is copied to a different cell. Absolute references remain the same no matter where they
are copied.

DFP Module 2 Assignment 1505
Units: FNSINC401, FNSINC501, FNSASICT503, FNSASICW503, FNSASICV503, FNSFMK502, FNSFMK503, BSBITU402, FNSFPL506
7) Provide an example of when you might use a relative cell reference in excel. Remember, you can
google or youtube this, in addition to the notes we have provided if you need additional help.
Relative cell references used when a value is copied around multiple cells and this can be case can
be used during the time of auto fill.
8) Provide an example of when you might use an absolute cell reference in excel. Remember, you
can google or youtube this, in addition to the notes we have provided if you need additional
help.
An example can be given that in order to keep the dollar sign in all the cells absolute cell
references are done
9) Explain what is meant by a weighted return.
It refers to the process with the help of which the current value of the cash flows and the terminal
value become equivalent to the initial investment value.

DFP Module 2 Assignment 1505
Units: FNSINC401, FNSINC501, FNSASICT503, FNSASICW503, FNSASICV503, FNSFMK502, FNSFMK503, BSBITU402, FNSFPL506
10) Ensure you submit your excel spreadsheet including the pie chart when you submit your
assignment.
Assessment Activity 2
Calculation Exercise
Time Value of money - Mortgage
Activity instructions to candidates
 This is an open book assessment activity.
 You are required to read this assessment and answer all 7 questions that follow.
 Please type your answers in the spaces provided.
 Please ensure you have read “Important assessment information” at the front of this
assessment
 Estimated time for completion of this assessment activity: 1-2 hours

DFP Module 2 Assignment 1505
Units: FNSINC401, FNSINC501, FNSASICT503, FNSASICW503, FNSASICV503, FNSFMK502, FNSFMK503, BSBITU402, FNSFPL506
Tip: Appendix 4 of Module 2 has a similar question with workings.
Background
Kyle and Julia are considering whether or not to buy a particular property valued at $720,000. They
have $200,000 of their own funds to commit towards the purchase and they expect to incur an
additional $50,000 in fees and taxes on the purchase itself. They are able to borrow at an interest rate
of 7.20 per cent per annum with interest compounded monthly. Loan repayments would be monthly
with the first payment due at the end of the first month after purchasing the property. The term of the
home loan is 30 years. They both work full-time earning a combined after-tax salary of $12,000 per
month.
1. How much is the monthly mortgage payment Kyle and Julia will be required to pay for their loan?
Hint: because the interest is compounded monthly, we need to use the number of months for the
mortgage loan, not the number of years in determining the regular payments to be made. We also
need to use the monthly interest rate (7.2% /12 = 0.6%)
Using the present value of an annuity formula we can rearrange the following formula to obtain the
regular monthly mortgage payment PMT.
PV = PMT
[1−( 1+r )−n
]
r
PMT = PV /
[1−( 1+r )−n
]
r
Alternatively, you can use a financial calculator to determine PMT.
PV = amountborrowed from the bank
r = interest rate per month
n = number of months over the entire loan period
If we select the payment key (PMT) on the financial calculator, we will know the amount of
the regular monthly mortgage payments the bank requires us to pay.
If you prefer to use an online mortgage calculator, you can choose one of hundreds
available. An example of one such mortgage calculator is:
http://www.nab.com.au/personal/loans/home-loans/loan-calculators/loan-repayments-
calculator

DFP Module 2 Assignment 1505
Units: FNSINC401, FNSINC501, FNSASICT503, FNSASICW503, FNSASICV503, FNSFMK502, FNSFMK503, BSBITU402, FNSFPL506
Provide your answer here
$3869
2. A loan affordability ratio is equal to the monthly home loan repayment divided by a couple’s
household after-tax monthly income. A key threshold for ‘mortgage stress’ is when the loan
affordability ratio reaches 35%. Will Kyle and Julia face mortgage stress at current interest rates.
Provide your answer here
$3,869/$12,000 = 32%
Their affordability of loan is 32%. This indicates that they are close enough to the stress limit of 35%.
3. After 1 year, the bank informs Kyle and Julia that $564,429 is still owing on their loan. How much
in total have Kyle and Julia paid in mortgage payments during the first year?
Provide your answer here
$3,869 x 12 = $46,428

DFP Module 2 Assignment 1505
Units: FNSINC401, FNSINC501, FNSASICT503, FNSASICW503, FNSASICV503, FNSFMK502, FNSFMK503, BSBITU402, FNSFPL506
4. Of the repayments, how much of their principal has been reduced?
Provide your answer here
$5,571
Balance of loan after 12 months = $564,429 ($570,000 - $5,571)
5. How much interest have they paid in year 1?
Provide your answer here
$40,858
6. If the bank now increases interest rates from 7.20 per cent to 8.40 per cent, what will Kyle and
Julia’s new monthly mortgage repayments be?
Hint: remember to use monthly interest rates. And, remember that there are only 29 years left
on the loan (use months not years).
Provide your answer here
$4,333

DFP Module 2 Assignment 1505
Units: FNSINC401, FNSINC501, FNSASICT503, FNSASICW503, FNSASICV503, FNSFMK502, FNSFMK503, BSBITU402, FNSFPL506
7. How will this new monthly mortgage repayment affect their loan affordability ratio? That is, will
they be facing mortgage stress?
Provide your answer here
$4,333 /$12,000 = 36%
Their loan affordability rose to 36%. This would lead to mortgage stress.

DFP Module 2 Assignment 1505
Units: FNSINC401, FNSINC501, FNSASICT503, FNSASICW503, FNSASICV503, FNSFMK502, FNSFMK503, BSBITU402, FNSFPL506
Assessment Activity 3
Short Answer Questions
Investment Fundamentals
Activity instructions to candidates
 This is an open book assessment activity.
 You are required to read this assessment and answer all 3 questions that follow.
 Please type your answers in the spaces provided.
 Please ensure you have read “Important assessment information” at the front of this
assessment
 Estimated time for completion of this assessment activity: 1-2 hours

DFP Module 2 Assignment 1505
Units: FNSINC401, FNSINC501, FNSASICT503, FNSASICW503, FNSASICV503, FNSFMK502, FNSFMK503, BSBITU402, FNSFPL506
Question 1
Answer the following questions in the spaces provided.
a) What is the formula for calculating Earnings Per Share?
Earnings Per Share=Total Earnings/Outstanding shares
b) Explain the difference between a residential home and an unlisted property fund.
Unlisted property funds usually do not have any market area for trading. They are mainly of unitised structure,
which has a fixed investment term and clear investment purpose. Their structure can be open ended, that is a fund
manager can purchase additional assets for the purpose of investment portfolio, by issuing new units so as to raise
extra money at any time or close ended, that is no new units can be issued and have a defined and fixed
investment period for raising money. The volatility of returns received from unlisted property funds are generally
less, that is they are not much volatile.
c) Explain the difference between top-down and bottom-up research when it comes to choosing which
investments to select in a share fund.
The main focus of a top-down approach is on how the whole economy and macroeconomic factors operates the
whole market and eventually the stock prices. They will also keep an eye on the performance of different
industrial sectors. Whereas, in bottom-up approach a fund manager regardless of the market trends will inspect
on the fundaments of a stock. There main focus is on the performance of an individual company in a sector.
Background to Questions 2 and 3
You are provided with the following 3 portfolios:
Asset Class Investment Portfolio 1 Investment Portfolio 2 Investment Portfolio 3

DFP Module 2 Assignment 1505
Units: FNSINC401, FNSINC501, FNSASICT503, FNSASICW503, FNSASICV503, FNSFMK502, FNSFMK503, BSBITU402, FNSFPL506
Cash 70% 10% 5%
Fixed Interest 15% 25% 0%
Shares 15% 45% 75%
Property 0% 20% 20%
Total 100% 100% 100%
Question 2
When deciding on what is an appropriate asset allocation, investors often consider the
following:
 ability to deal with short term volatility
 liquidity
 concern about effects of inflation
 potential tax effectiveness
 capital growth
 capital stability
Answer the following questions in the spaces provided.
a) Which of the six investor considerations listed above do you believe would be very important
for an investor who chooses to invest in Investment Portfolio 1?
Liquidity
b) Which of the six investor considerations listed above do you believe would be very important
for an investor who chooses to invest in Investment Portfolio 2?
Capital growth and stability
c) Which of the six investor considerations listed above do you believe would be very important
for an investor who chooses to invest in Investment Portfolio 3?

DFP Module 2 Assignment 1505
Units: FNSINC401, FNSINC501, FNSASICT503, FNSASICW503, FNSASICV503, FNSFMK502, FNSFMK503, BSBITU402, FNSFPL506
Concern about inflation, Capital growth and potential tax effectiveness
Questions 3
Simon and Janine Mackintosh are married. They are both 65 and have just retired. They have
$1,500,000 funds in a combination of superannuation and non-superannuation investments.
They own their home which they intend to retain as their home during their retirement phase.
They do not have any debt. They plan to spend $60,000 p.a. in retirement and do not have any
further planned annual or lump sum expenses.
They have two daughters to whom they would like to eventually leave their home and
remaining investment assets upon their deaths.
Simon and Janine are able to tolerate some investment fluctuations, although they would be
very concerned if their investments fell by 40% in any year. Throughout most of their working
life, they invested their funds in growth investment options comprising 15% defensive
investments (cash and fixed interest) and 85% in growth investments (shares and property).
However, they want to change their asset allocation now that they are both retired.
Simon and Janine are both healthy and they are each expected to live approximately 20 more years.
Required:
a. Explain as though you are their financial adviser, the trade-off between income oriented
investments and growth orientated investments.
Being retired means that one needs to maintain a balance between the growth and the income
oriented investments and therefore it is essential to change their growth oriented attitude by shifting
from 83% growth investments to around 55% and increase the income investment to 45% with help of
which the fall out will be lower than 40% annually and a safe and peaceful retired life can be attained.

DFP Module 2 Assignment 1505
Units: FNSINC401, FNSINC501, FNSASICT503, FNSASICW503, FNSASICV503, FNSFMK502, FNSFMK503, BSBITU402, FNSFPL506
b. Assuming Simon and Janine have completed their risk profile and you have ascertained
that they areassertive investors. Which of the three investment portfolios provided as the
background to questions 2 and 3 would be most suitable? Explain your answer.
Investment portfolio would be ideal for them as they are retired and have sufficient balance to take
care of their future. Investing in investment portfolio 2 would provide them income as well safety from
the unprecedented incidents from the market.
c. Explain how the portfolio you selected would perform in the event of a bear market
compared to a bull market.
.
In the time of bear market, the couple can look forward to sell the shares which are offering higher
prices and if the couple does not wish to sell their shares then the income from the income oriented
investments.

DFP Module 2 Assignment 1505
Units: FNSINC401, FNSINC501, FNSASICT503, FNSASICW503, FNSASICV503, FNSFMK502, FNSFMK503, BSBITU402, FNSFPL506
Assessment Activity 4
Short answer questions
Derivatives
Activity instructions to candidates
 This is an open book assessment activity.
 You are required to read this assessment and answer all 7 questions that follow.
 Please type your answers in the spaces provided.
 Please ensure you have read “Important assessment information” at the front of this
assessment
 Estimated time for completion of this assessment activity: 1-2 hours

DFP Module 2 Assignment 1505
Units: FNSINC401, FNSINC501, FNSASICT503, FNSASICW503, FNSASICV503, FNSFMK502, FNSFMK503, BSBITU402, FNSFPL506
Questions 1
What is the difference between an option and a futures contract?
COMPARISON
BASED ON
FUTURES OPTIONS
Definition Futures contract is a binding
agreement, generally required for
buying and selling of a financial
instrument at a fixed price at a
specified date in the future.
Options are an agreement in a contract in
which the investor have the full rights to buy
or sell the financial instrument at a fixed
price, on or before a specific date, but the
investor is not compel to do so.
Obligation of
buyer
Yes, for the execution of the
contract.
No, the buyer has no obligation.
Execution of
contract
On the pre-defined date. Can be done at any time, but before the
expiry of the defined date.
Risk High Limited
Advance
payment
There is no advance payment Payments are done in the form of premiums.
Degree of
profit/loss
Unlimited The profits are unlimited but the losses are
limited.
Questions 2
A share trader buys 1000 shares a company with the intent to sell them when that company’s
share price increases. Is the share trader a hedger or speculator? Explain
The trader is a speculator as hedgers intend to sell shares with the speculation that the share price may fall but the
speculators are risk takers and are looking to make more profits and therefore trader being a speculator takes the
risk of buying the shares with the idea that when the share price increase they would sell.

DFP Module 2 Assignment 1505
Units: FNSINC401, FNSINC501, FNSASICT503, FNSASICW503, FNSASICV503, FNSFMK502, FNSFMK503, BSBITU402, FNSFPL506
Questions 3
Brad is a car collector. He purchases insurance on his collection to protect himself from damage
or theft. Is the collector a hedger or speculator? Explain
He is a hedger as he collects insurance with the idea that the prices may fall or any damage or theft can take place.
Questions 4
A manufacturer buys a call option to purchase 600 bales of wool at $1000 a bale and the spot
price is $950. To buy this call option, the manufacturer pays an option premium of $12000.
a. If the manufacturer exercises his/her call option, what is the cost for the 600 bales of
wool? (ignore the cost of the option premium)
$6000
b. Explain whether or not the manufacturer will exercise the call option.
No as it is much cheaper to purchase at the spot price of $950 per bale in comparison to the $1000 per bale option
price
Questions 5
An oil refinery bought a put option to sell 1,000,000 gallons of airline fuel at $3 per gallon and
the spot price is $2.80. To buy this put option, the oil refinery paid an option premium of
$60,000.

DFP Module 2 Assignment 1505
Units: FNSINC401, FNSINC501, FNSASICT503, FNSASICW503, FNSASICV503, FNSFMK502, FNSFMK503, BSBITU402, FNSFPL506
a. If the oil refinery exercises theput option, how much will they receive for the 1,000,000
gallons of fuel? (ignore the cost of the option premium)
$3,000,000
b. Explain whether or not the oil refinery will exercise the put option.
They would as the option price of $3 per gallon is far effective than the spot price of $2.80 per gallon.
Questions 6
Hedgers and speculators are two types of futures traders. For each type, explain what
would motivate the trader to open a long futures position.
A hedger would make use of a short scenario in the futures contract to safeguard a sale of asset against market
fluctuations.
A speculator would buy a long position on the futures contract if they were anticipating a specific asset to enhance
its value in the future.
Questions 7
Marking to market

DFP Module 2 Assignment 1505
Units: FNSINC401, FNSINC501, FNSASICT503, FNSASICW503, FNSASICV503, FNSFMK502, FNSFMK503, BSBITU402, FNSFPL506
Paul buys one contract to purchase corn futures in 3 months’ time. One contract covers the
purchase of 100 bushels. The current corn futures price on April 2 is $6,280 per bushel. The
closing price for the corn futures over the subsequent days is provided in column 1 of the table
below. The broker requires you to deposit an initial amount of $7,000 into a margin account.
The maintenance margin is $6,500. Complete the table below to show how much is transferred
to or from your margin account each day?
Remember if the margin balance falls to the maintenance margin, it must be restored to the
initial margin level.
Date Futures price Daily
gain/loss
Beginning margin
account balance
Margin call Closing margin
account balance
April 2 6,280 7,000
April 3 6,295 1500 7000 8500
April 4 6,315 2000 8500 10500
April 5 6,240 -7500 10500 7000
April 6 6,237 -300 7000 4000 6700
April 7 6,241 400 6700 7100
April 8 6,238 -300 7100 6800
April 9 6,226 -1200 6800 1400 7000
April 10 6,227 100 7000 7100
Assessment Activity 5
Short Scenarios
Derivatives
Activity instructions to candidates
 This is an open book assessment activity.

DFP Module 2 Assignment 1505
Units: FNSINC401, FNSINC501, FNSASICT503, FNSASICW503, FNSASICV503, FNSFMK502, FNSFMK503, BSBITU402, FNSFPL506
 You are required to read this assessment and answer all 4 questions that follow.
 Please type your answers in the spaces provided.
 Please ensure you have read “Important assessment information” at the front of this
assessment
 Estimated time for completion of this assessment activity: 1 hour

DFP Module 2 Assignment 1505
Units: FNSINC401, FNSINC501, FNSASICT503, FNSASICW503, FNSASICV503, FNSFMK502, FNSFMK503, BSBITU402, FNSFPL506
Question 1
A trader enters into a one-year “short” forward contract to sell an asset for $60 when the
spot price is $58. The spot price in one year proves to be $63. What is the trader’s gain or
loss?
$3 Loss
Question 2
A trader buys one (1) European call option contract (one contract consists of 100 shares).
The strike price is $20 and the time to maturity is one year. The premium is $2 per share.
The price of the underlying asset proves to be $25 in one year. What is the trader’s gain or
loss?
$300 profit
Question 3
A trader sells one (1) European put option contract (one contract consists of 100 shares).
The strike price is $50 and the time to maturity is six months. The premium received for
each share is $4. The price of the underlying asset is $41 in six months. What is the trader’s
gain or loss?
$500 loss
Question 4

DFP Module 2 Assignment 1505
Units: FNSINC401, FNSINC501, FNSASICT503, FNSASICW503, FNSASICV503, FNSFMK502, FNSFMK503, BSBITU402, FNSFPL506
Suppose that a March call option on a stock with a strike price of $50 costs $2.50 and is
held until March. Under what circumstances will the holder of the option make a gain?
Under what circumstances will the option be exercised?
The option holder will gain if the stock price is over $52.50 in March. The option will be undertaken
the price of the stock more than $50.00 in March.
NOTE TO STUDENT:
Important: Please ensure that each of the documents listed below are submitted:
 Assignment answers (with your name and date inserted).
 Activity 1 spreadsheet relating to BCG Balanced Fund and BCG Growth Fund.
Thank you.