T-1.8.

Details of Assessment
Term and Year

T2 2015

Time allowed

Week 2 to Week 8

Assessment No

Assessment Weighting

40%

Assessment Type

Class activity

Due Date

Due Week 8

Room

TBA

Details of Subject
FNS60210 Advanced Diploma in Accounting
Qualification
Subject Name

Principles of Economics

Details of Unit(s) of competency

Unit Code and
Title

FNSINC601A Apply economic principles to work in the financial services industry

Details of Student
Student
Name

Student
ID

Student Declaration: I declare that the work

submitted is my own, and has not been copied
or plagiarised from any person or source.

Signature: ___________________________
Date: _______/________/_______________

Details of Assessor
Assessors Name
Assessment Outcome
Results

Satisfactory

Not Satisfactory

Marks

/ 40

FEEDBACK TO STUDENT
Progressive feedback to students, identifying gaps in competency and comments on positive improvements:

______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________

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T-1.8.1

Student Declaration: I declare that I have been

assessed in this unit, and I have been advised of my
result. I also am aware of my appeal rights and
reassessment procedure.

Assessor Declaration: I declare that I have

conducted a fair, valid, reliable and flexible
assessment with this student, and I have provided
appropriate feedback
Student did not attend the feedback session.
Feedback provided on assessment.

Signature: ____________________________

Signature:

____________________________

Date:

Date:

____/_____/_____

____/_____/_____

Purpose of the Assessment

The purpose of this assessment is to assess the
student in the following learning outcomes:

Assessment task 1:
Portfolio of Activities
(Task numbers)

Identify economic principles and theories related to

financial services functions and tasks

Task 7, 8, 9, 17, 18, 22, 24,

25, 26, 38

Microeconomic theory of markets and how this

influences financial products and services is
understood

Task 1, 16, 19, 20

Capital adequacy regulation and

requirements as they apply to work
functions are accessed and considered

Task 39, 41

Relevant financial modelling techniques are applied

to economic data to inform decision making

Task 33, 37, 38, 39

Appropriate asset pricing models and their

application are known and used

Task 5-9, 14,16, 42, 45,

Models of determining organisational value in

relation to capital structure are applied

Task 46

Current economic theories and their impact on the

industry are researched to ensure relevant
knowledge is current

Task 31, 32

Satisfactory

Not yet Satisfactory

(S)

(NS)

Assessment/evidence gathering conditions

Each assessment component is recorded as either Satisfactory (S) or Not Satisfactory (NS). A student can only achieve
competence when all assessment components listed under Purpose of the assessment section are Satisfactory. Your train
will give you feedback after the completion of each assessment. A student who is assessed as NS (Not Satisfactory) is elig
for re-assessment.
Resources required for this Assessment

All documents can be created in written or Microsoft Word in class

Upon completion, submit the assessment copy to your trainer along with assessment coversheet.
Refer to the notes on eLearning to answer the tasks
Any additional material will be provided by Trainer

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Instructions for Students

Please read the following instructions carefully

This assessment has to be completed
In class
At home
This assessment is to be completed according to the instructions given by your assessor.
Students are allowed to do this assessment home.
Feedback on each task will be provided to enable you to determine how your work could be improved. You will be
provided with feedback on your work within 2 weeks of the assessment due date. All other feedbacks will be provided b
the end of the term.
Should you not answer the questions correctly, you will be given feedback on the results and your gaps in knowledge.
will be given another opportunity to demonstrate your knowledge and skills to be deemed competent for this unit of
competency. If you are not sure about any aspects of this assessment, please ask for clarification from your assessor.
Please refer to the College re-assessment and re-sit policy for more information.

Week 1
Task 1
When someone on a good income says that, they cant afford a plasma screen television what do
they really mean?
Task 2

Zhayr has $10000 in his bank account. He is deciding whether to buy a car or invest the money in the
stock Market .
1.

What is trade-off Zuhayr is facing

2.

What is the opportunity cost of investing the money in the stock exchange

3.

What is the economic cost of purchasing the car

Task 3

Q 200 50P (i)

Define the inverse supply function of equation (i)

Task 4
The freshly washed car before going for a date cost you $6. You would like accept $3.50 for washing
someone else car. You need to wash your car as well. So how much economic surplus would you
receive from washing it.

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Week 2
Task 5: How would each of following affect the market supply curve for wheat?
1)

A new and improved cropping technique is discovered.

2)

The price of fertiliser increase

3)

The government offers drought relief to wheat farmers.

4)

A drought hits a major wheat growing area.

Task 6: Indicate how you think each of the following would affect the market demand curve in the
relevant market
1)

Incomes of buyers in the market for overseas vacations increases.

2)

Buyers in the market for mobile phones read a study linking phone usage to brain tumours

3)

Buyers in the market for CDs learn of an increase in the price of MP3 players.

4)

Buyers in the market for CD players learn of an increase in the price of CDs

Task 7: Use the supply and demand model to predict what will happen to the equilibrium price and
quantity of apples if the wage paid to apple pickers rises
Task 8: Use the supply and demand model to predict what will happen to the equilibrium price and
quantity of childcare if there is an increase in the birth rate.

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Task 9: Use the supply and demand model to predict what will happen
to the equilibrium price and quantity of cars if there is new law increasing the required level of car
insurance.

Week 3

Task 10: Why Does consumers price elasticity of Demand for a good depends on the fraction of the
consumers income spent on that good.
Task 11: The demand and supply of apple computers
functions:

is described by the following

QD = 700 -100P QS = -100 +100P

Represent the demand and supply model in (Q, P) space diagram. Calculate the equilibrium quantity
and price of widgets. Suppose the advent of computers improves production of widgets by 20%.
How would the supply function be affected?

Task 12: The government introduces a new get tough on drugs policy in which it will target the
importers and dealers of drugs. There are two types of drugs drug A and drug B. Drug A has an
elastic demand in the relevant range. Drug B has an inelastic demand in the relevant range.
Analyse the effect of the new drug policy in the market for both drugs. What would be the effect on
total expenditure on each of the drugs? Are your answers consistent with economic theory?
Task 13: Refer to Task 12 . If the intent of the policy is to reduce the amount of drugs consumed, will
the policy be successful? What if the intent is to reduce drug related crime?
Task 14: Calculate the crossprice elasticity for the following goods. Are they substitutes or
complements?
a.
The price of movie theatre tickets goes up by 10 percent, causing the quantity demanded for
video rentals to up by 4 percent.

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b. Computer price fall by 20 percent, causing the quantity demanded of

software to increase by 15 percent.
c.
The price of apples falls by 5 percent, causing the quantity demanded of pears to fall by 5
percent.
d.
The price of ice cream falls by 6 percent, causing the quantity demanded of frozen yogurt to
fall by 1 percent.

Week 4 (comparative advantages)

Task 15: Billy can produce either good x or good y. In one hour he can produce 4 units of good x.
Alternatively he can produce 2 units of good y in that hour. Sally can produce either 6 units of good x
in an hour or 2 units of good y in an hour.
(a)
What is absolute advantage? Who has the absolute advantage in producing x and which
party has the absolute advantage of producing good y?
(b) What is comparative advantage? Which party has the comparative advantage of producing good x
and good y?
Task 16:
bicycles.

Draw the production possibility curve for an economy that can produce either cars or

(a)

Show a point in which the economy is not producing efficiently.

(b)

Show a point that is unattainable given the current state of technology.

(c)

Show a point where the economy is producing efficiently.

(d)

Relate shifts along the production possibility curve to the concept of opportunity cost.

Task 17: For the demand curve shown below, show the calculation or consumer surplus.

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Task 18: Consider the demand function to be qd = 100 5P and the supply function to be qs = 5P.
a)

What is the market equilibrium?

b)
Calculate the consumer and producer surplus at the market equilibrium. What is the total
surplus?
Task 19: A firm in a competitive industry has fixed costs of TFC = 10, marginal costs of MC = 5 + 6Q,
and average variable costs of AVC = 5 + 3Q.
(a)

What are the firms total variable costs (TVC)?

(b)

What is the firms total cost function?

(c)

If the price is $35, how much does the firm supply?

(d)

Does the firm continue to supply this quantity in the shortrun? Explain.

Now consider the licorice industry, and assume that it is competitive. Each firm produces 2 million
straps of licorice per year. The straps have an average total cost of $0.20 each and they sell for
$0.30.
(e)

What is the marginal cost of a strap?

(f)

Is the industry in longrun equilibrium? Why or why not?

Task 20:
A tennis ball factory pays $1000 a week in rent and $2000 a week in labour costs for its 5 staff
members; assume all staff members are paid the same wage. The firm produces 1000 packs of tennis
balls per week and sell them all to a tennis shop for $6 each. Work out the factorys fixed cost,
variable costs, average fixed cost, average variable cost, total costs and average total cost per week.

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Task 21:
What is the difference between a monopolistically competitive market and a perfectly competitive
market?

Week 5 (Macro economics and financial modelling)

Task 22: Golflands nominal GDP was $108 in 2011 and $115 in 2012. The Price level in 2011 was
100 and rose to 103 in 2012 Calculate Golflands annual economic growth rate.
Task 23: What are component of aggregate demand?
Task 24: Explain the reason for the Australias persistence inflation problem during 1970s.
Task 25: What is the target rate of inflation set by RBA? Why does the RBA set an inflation target?
Task 26: What is the expansionary fiscal policy and what is its purpose? What is concretionary fiscal
policy? When might a government use concretionary fiscal policy?
Task 27: Outline how each of the following events would be likely to impact on the budgets bottom
line:
(a)

A decline in consumer and business confidence

(b)

A drop in unemployment

(c)

A continued recession overseas.

Task 28: Explain how RBA increases the cash rate and how does RBA lower the cash rate.
Task 29: Why does a reduction in the cash rate (Expansionary monetary policy) increase economic
growth?
Task 30: Give two reasons for Australias persistent current account deficit and explain why they are
recurring themes.

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Task 31: What did Keynesian economics say was the cause of the unemployment over 20% during
the great depression? What was the solution it advised?
Task 32: Why did monetarism come into prominence in the 1970s? How did supply side economics
tackle the joint problems of high inflation and high unemployment?

Week 6 (Financial modelling)

Task 33: A term deposit will be worth $2500 in 6 years time. It grows at a simple interest rate of 7%
per annum. A Government bond will be worth $3600in 10 years time. It grows at a simple interest rate
of 6% per annum .Calculate the present value of each and find out which is the better investment.
Task 34: What will $1000 be worth in 5 years if invested at 8% compound interest p.a?
Task 35: Tim is going on holiday .How much would he need to deposit in the bank now so that he can
draw $2000 for each of next 6 months? He can earn 12% p.a payable monthly on his money.
Task 36: Karen deposits $200 per month to her bank account. If she can earn 9%
p.a

payable monthly how much will she have in total after one year?

Task 37: Calculate the payback for the following two mutually exclusive projects:
Project A

Project B

- $100,000

-$100,000

Year 1

$40,000

$30,000

Year 2

$30,000

$20,000

Year 3

$50,000

$40,000

Year 4

$20,000

$60,000

Original Investment
Annual After tax cash inflow

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Year 5

$0

$80,000

Task 38: Skyline enterprise is considering an investment project that will cost $230,000. It has an
economic life of 4 years with no expected scrap value. Depreciation will be charged at $40,000 each
year and the tax rate is 30%.
(a)

Complete the following table

(b)

Using a cost of capital 10%, calculate the project NPV

End of Year

Investment

-$230,000

Operating
cash inflow

181000

241000

302500

360000

Operating
cash outflow

121000

161000

192500

245000

Net operating
cash flow

Less
Depreciation
Accounting
profit Before
Tax
Taxation
Expense
30%

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Accounting
profit after tax

Free cash flows

( Net operating
cash flow less
taxation

Week 7
Task 39: Explain with examples ; (a) Bond, (b) Commercial Bills and promissory notes,(c)
Debentures,(d) Loans,(e)Unfunded loan commitments, (f) Letter of Credit, (g) Yield curves
Task 40: What determines the share price of a company? If some bad news came out about a
company causing many investors to want to sell their shares, what would happen to the share price?
Task 41: Explain Option, warrants and Future / Forward Contract with examples. What is hedge fund
and explain the hedge fund and Arbitrage strategies.
Task 42: Cool ridge Water co. is considering investing in a new source of water that will cost
$5000000. Cool ridge can get debt funding for new project. Currently Cool ridge has $4000000in debt
funding and 16,000000in equity funding. The cost of debt is currently 6% and the cost of equity in
currently 9%. After the new project the cost of debt will rise to 5.6% and the cost of equity will rise to
10%. Has shareholder wealth changed?
Task 43: What is the systematic and unsystematic risk? Which can be diversified away and why?
Task 44: In terms of Portfolio theory:
(a)

What is the efficient frontier?

(b)

What are the two points that connect the capital market line?

(c)

What does the slope of the capital market line indicate?

(d)
Avoidable and unavoidable are common terms for investor risk. By what names do we also
know these risks and which belongs to which?

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Task 45: (a) Calculate the expected return for the following companies:
Beta Co-efficient
Company B

1.1

Company C

0.8

The expected return on Government bonds is 10% and the expected return on the market portfolio is
18%.
(b) Why are the returns obtained by these companies different?
Task 46: What is the security market line and how does it differ from the capital market line? What
does it have to do with the CAPM? If a security is plotted above the security market line is it over
priced or under- priced? Explain what might happen is this situation.

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