Question description

 

 

1

FIN 300 Summer 2013 Homework Assignment 2 

Possible Points: 10 

Submission format: A Word document to be submitted electronically. 

Project Due Date: Your file must be posted to RamCT by 9:00 pm on Saturday, June 1

File Naming Convention 

(note: In the filenames below, do include hyphens; do not add spaces.) 

1. Required Word document: Name your Word document as shown below. 

 file name: “HW2-Lastname-Firstname.docx” 

File Posting Procedure 

1. Post your file to RamCT: To submit your files, go to RamCT and click on "Submit Project Files Here" and 

follow the links. To upload your file click on "Browse My Computer" to locate the file on your hard drive; be sure 

to click on "Submit" to complete the upload process. (This link will be ready by May 30.) 

Late Penalty for Answer Files 

 • Late projects will be accepted for a limited time after the deadline, subject to late penalty of 1 point per hour past 

the deadline. After 10 hours the penalty is 10 points and late projects will no longer be accepted. 

Preliminaries - set up your document as follows: 

1. At the top of the first page type an appropriate heading including the following information: 

 • your full name 

 • your student ID number 

 • “HW Assignment 2” 

2. If your writeup spans more than one page, insert page numbers to appear at the bottom center of each page. 

 Note: in Word 2010 you can use the following commands from the drop-down menu: 

Project Instructions:

The objective of this project is to deepen your understanding of course material and how it relates to the real world 

by reading and analyzing an article of your choice from the Wall Street Journal. Write a brief analysis explaining 

how the article or a selected passage relates to a course topic. Your analysis can address a topic from any chapter, or 

chapters, that have been covered in class up to or prior to the time your article is submitted. 

The following restrictions apply: 

 • Your article must be from 2013. 

 • Your analysis must be your own original thoughts and cannot plagiarize another person’s work − including the 

instructor’s, meaning that you cannot simply reiterate the instructor’s analysis of an article from class lecture. 

(You can apply the same principles as those from class discussion, but you should apply them to different 

articles.) 

 • Type your report in a 12-point font, double spaced. 

 • There is no minimum required length for your writeup, but a few paragraphs should suffice. 

Note: This is an opportunity for you to show that you can apply what you have learned. Don’t be afraid to state the 

obvious in writing up your comments. I can’t tell what you are thinking if you don’t state it. Use the following 

guideline: Suppose you were trying to explain the meaning of an article to a friend or family member who had not 

taken this class; in order to do this, you would need to provide some background information, for example by 

describing the relationship between variables such as interest rates and inflation, or by defining terms such as ‘bond 2

rally’ or ‘inflation.’ Write up your analysis as if you were explaining the article to your friend in a way they could 

understand. An illustrative example appears on the next page. 

Additional Remarks: 

 • You don’t need to analyze every paragraph of an article. Just look for relevant passages that relate to course 

material, and focus on those parts. 

 • You don’t need to attach copies of your article, just give the title and date; the instructor can download a copy of 

the article to refer to while grading, if needed. 

Grading Criteria 

To some extent the grading will be relative, meaning that higher quality papers will receive relatively higher scores. 

While the quantity of your analysis may give an indication of your effort level, note that lengthier papers will not 

necessarily receive higher scores just because they are lengthy; rather, the quality of your analysis will be just as 

important as the quantity. 

Grading criteria will include the following components: 

 • Writing quality and organization. 

 • Technical correctness. 

 • Clarity of expression; ideas are clearly and effectively communicated. 

 • Writeup demonstrates understanding of course material. 

 • Following directions. 

 • Documentation of article name and date. 

 • Grammar, punctuation and spelling. 

Illustrative Example 

An example on the next page provides a ‘model solution’ showing the type of analysis the instructor is looking for. 

Note that while the article in the illustrative example is from 2009, your article must be from 2013. 3

 Illustrative Example Your Name Here 

 Your Student ID 

 HW Assignment 2 

Article Title 

“Treasurys Slump After Weak Auction,” dated October 9, 2009. 

Analysis 

 This article describes the outcome of a Treasury auction in 2009. The article indicates that prior to 

the auction there was a “rally in the 30-year Treasury bond.” In class we learned that the definition of a 

bond rally is when bond prices increase. In this case, the bond market rallied in advance of the auction, but 

it turned out that demand for the newly auctioned Treasury bonds was weak, and consequently the rally 

reversed course once the auction occurred. 

 In a Treasury auction, if there is strong demand for purchasing Treasury securities then this will 

push prices higher, and the resulting yield on the auctioned securities will be lower. In class we learned 

that prices and yields move in opposite directions, which the article mentions in paragraph five. This is 

because the expected payoff to the bond is fixed; therefore the higher the price paid, the smaller will be the 

spread between the purchase price and the payoff, and hence the smaller the yield. 

 In class we also learned that Treasury auctions are a ‘primary market’ transaction in which new 

securities are issued by the U.S. Treasury as a means of borrowing money to finance its budget deficit. 

Note that even though the Fed helps administer the auction, it is the U.S. Treasury who is actually doing the 

borrowing in a Treasury auction. An example of a ‘secondary market’ transaction is when the Fed buys or 

sells T-bills on its own account for monetary policy purposes, as that involves the trading of previously 

issued securities.