Answer to Question 1: The price of stocks and other asset classes has been important indicator of the dynamic

activity of any economy. Earlier when stock exchanges were not present people who want to sell stocks had to find a prospective buyer and then trading would happen face to face and payment and shares would get settled in paper format. There was no one to look after all these activities and no regulation at all to curb any kind of mishap. This led to much big scandal which in turn led to wiping out of the entire wealth of many investors. There was no corporate governance to protect investors interest and to keep an eye on the managements activities. This system had many loopholes such as there was no control of prices, no system of tracking who is buying and how many shares are being bought. To overcome these, concept of exchange came into existence which acts as a regulator to all these. It has following major function: This stock exchange handles primary, secondary and derivative markets It collects and delivers shares, guarantees payments to the seller of shares to eliminate the risk of individual in the transaction. Smooth functioning of the entire market. It puts some mandatory requirements for companies before they can come with IPO which helps in protecting investors interest. Stock exchange is an important source of companies to raise financial capital by selling the ownership of company in a public market. Companies which are working in capital intensive industry are always needed of money to expand their business. Exchange provides them a platform to raise capital and to utilize that in business expansion.

It gives securities a market to get traded. It provides investment opportunities for small investors. It helps market to work efficiently through many regulations put on trading and companies.

It helps in controlling spiralling prices of shares to avoid any mishap.

ASX in particular is an umbrella brand under ASX Group to provide various market service activities with commitment to provide all infrastructures to carry out all market activities. It is now worlds top 10 exchanges buy market capitalization. It carries out following activities: Provide primary and secondary market for securities It help companies to raise money Capital flow hedging Pricing and trading Centre counterparty Oversees compliance with its rule and corporate governance Monitors all market activities Its customer base include both domestic and foreign customers thus providing very diverse customers for market

Answer to Q2: Company Type of Type of Business Industry ASX Code

Security

Advanced braking technology ltd

Ordinary Share

Its manufacturing plant is located in Thailand and it has worldwide patents. Its patent portfolio covers high-speed sealed disc, drum, secondary cooled braking systems, and various others. This is focused on developing and innovating breaking system. It emphasis is on developing to provide safety, improved productivity, lower operating costs, and also to make them environment friendly by reducing the breaks dust and noise emission. This has developed many products with light commercial vehicle series is ready to be in the market. Its current business strategy is to focus on Australian and North America marketing, where it is selecting seller and making network arrangements.

Automobile & Components

ABV

Antares energy limited

Convertible bonds

This is the company with focus on oil and gas exploration and development. It has three core projects Southern Star, Big Star and Northern Star . Its strategy focus on continually searching for reserves through drills and to capitalize on the opportunity it gets.

Energy

AZZG

Australand assets trust

Hybrid Securities

This is leading diversified property groups and has the reputation of providing quality homes and business to its clients. It has involved in property development for more than 80 yrs. It has three operating divisions Viz. Commercial & Industrial, Residential and

Real Estate

AAZPB

Investment Property. Its activities consist of housing and apartments, residential land, industrial property. It has market capitalization of $1,4bn as on 30 June

2012.

Answer to Q3: Security Ordinary Share Characteristic Ordinary shares provides share holder equity ownership in the company. Money raised through common stocks is called equity capital It also gives investor to vote in the various matters depending on the percentage of shares they own in a company. Share holders also receive dividends if any. They also get residual value in case company goes bankrupt; however they are the last in the line to receive economic value. Convertible Bonds Their return comprises of

These are also called convertible note or convertible debenture. This is a kind of bond that gives the owner to convert the bond into common stock or in cash of equal value. Investor receives a defined income higher than interest paid on loans. These bonds have lower value of coupon as compared to nonconvertible bonds. These allow issuer to raise money at lower price. This reduces the dilution of equity until they are converted to common stocks.

Preferred Stocks

These have the characteristic of bonds and stocks and all hybrids in nature.

In this kind of security investor receives pre determined amount of income in the form of dividends.

These generally have fixed maturity date. Generally converted into ordinary shares at some future point. Unlike stocks they do not enjoy voting rights in matters of a company.

These have priority over common stock in receiving dividends and economic value at the time of liquidation.

These stocks can be converted to common stocks.

Differences between three types of security Ordinary Stock Convertible Bond Preferred Stock

These gives voting rights to These do not have voting These do not have voting owner of stocks rights until these are rights.

converted into common stock These are the last in line of These receiving dividends are classified as These are the first in line of dividends and

and unsecured debt and have receiving lesser than

economic value in case of priority liquidation. These dilute the

the economic value in case of liquidation.

secured debt.

equity These do not dilute the equity These do dilute the equity ownership of the company. ownership of the company.

ownership of the company.

They do not receive pre They receive pre defined They do receive pre defined

defined income in the form income. of dividends.

income

in

the

form

of

dividends.

Answer to Question 4: Ordinary shares could be bought from the company at the time these are issued at face price or could be purchased from the secondary market by paying market price. At the time of issue the preference shares could be subscribed directly from company by paying the face value of the same. Once these are issued these will be traded in stock market and one can purchase these from market at market price. If the convertible bonds are not converted to stocks then owner of bonds will receive the face value at maturity. There value increases in value if the price of ordinary shares increases and buyer will have to bear higher cost of buying.

Similar to preference share these shares could be subscribed directly from company by paying the face value of the same. Once these are issued these will be traded in stock market and one can purchase these from market at market price. Answer to Question 5: In the case of common stock there is a chance for investors to lose money. Suppose when a company is in bad condition and no investor wants to buy the shares of that company and every investor is selling that particular stock so in this situation stock price might go down to zero. If this happens then investor will lose his entire money. However in the case of convertible notes and preference stock it is mandatory for the company to provide investors the predetermined coupon and dividends respectively. Even if company goes bankrupt there will be amount given to convertible notes and preference share first then common stock

holder would be served if there is any economic value left after serving the other two and secured debt. In case of bankruptcy the relative order or ranking for the security is as follows. Convertible notes > Preferred Stocks > Ordinary Stock This means that convertible bonds will have highest priority in receiving of any payment or any economic value of company at the time of liquidation. But they come after the secured debt of the company. In case of solvency secured debt is paid first from the economic value of the company and then only after convertible notes are paid from remaining value. Preferred stocks fall between convertible notes and ordinary stocks. These are given preference in distributing dividends and economic value at liquidation over common stocks. Ordinary stocks have lowest priority in any claim. Payment is made to common stock holders only when convertible notes and preferred stocks holders are paid. Answer to Question 6: Following factors are to be considered in choosing a particular type of financial asset. Return on Investment ROI is received from o Income which may include dividends, interest income, rent from property and distribution from trust, from investment and o Capital growth that investment has which could only be realized at the time of selling asset. This capital growth saves investors against inflation which happens when the capital growth is greater than the inflation growth. Capital growth may occur through increasing the price of shares, increased prices of property or assets etc.

This is calculated from the formula ROI = (Gain from investment Cost of investment)/Cost of investment

Liquidity this is the ability of any asset to get converted to cash. Better liquidity indicates that security could be easily converted to cash. If investor has need for the money in a short term or if he is facing financial crunch then liquidity plays important role in the decision of selecting particular type of security. Liquidity also affect various other factors such as transaction cost which increases if security is less liquid, selling at low price in case of low liquidity, difficulty in finding buyer of investor has the need to sell security.

Transaction costs there is always a transaction cost involved in buying or selling any financial asset. These costs include brokerage, use of service advisor, or any agent facilitating the buying or selling. This is a factor in making the decision of investing in a particular type of security which cannot be overlooked.

Risk Risk involved in a particular security also affect investor decision. Investors choose security as per their risk appetite.

Minimum investment amount Minimum amount needed for the investment in particular security also plays an important role. If a particular security requires low minimum amount then that would attract small investors. However if the requirement of minimum capital is high then that security can be bought by high net worth investors or financial institutions.

Taxes Investors generally see their after tax return not the pre-tax return. Investors are generally liable for income tax on any income received in the form of dividends received and also they have to pay capital gain tax on the capital appreciation they have. This is again very important factor for choosing particular security for investment.

Answer to Question 7: Ordinary share: This price has been taken from http://www.asx.com.au on 01/09/2012.
Code ABV Last
0.018

$+/0

Bid
0.017

Offer
0.018

Assuming that this price doesnt change much in a month and price of the stock increases by AUD 0.01. In this case if we invest AUD 5000 for a month then the return to shareholder would be = AUD 5000*.01 = AUD 50. Convertible note: This price has been taken from http://www.asx.com.au on 01/09/2012.
Next Payment Buy Sell Last Coupon Conv*/Reset** Frequency date Date
17-102.005 0 2.015 10.00% 31-10-2013 4 2012 31-10-2012

Next ExPayment

The return in this case will come from dividend payment and capital gain or loss that investor has.

Since the investment we are going to make investment only for a month. In this case as the next Ex-Date is after one month from today 01-09-12 so we wont be getting any coupon payment and will have to sell with low capital income after a month so it wont be good to choose this kind of security for investing AUD 5000. Preference Stock: This price has been taken from http://www.asx.com.au on 01/09/2012. The return in this case will come from dividend payment and capital gain or loss that investor has.
Buy
92.01

Sell
92.74

Last
92.2

Ex-Date
25-06-2012

Payment Date
16-07-2012

Since the investment we are going to make investment only for a month. In this case as the next Ex-Date is already passed and payment is already done so we wont be getting any coupon payment and will have to sell with low capital income after a month so it wont be good to choose this kind of security for investing AUD 5000 As per the analysis above we can recommend to invest in Common stock for a month rather than investing in convertible bond and Preferred Stock.

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References
1. 2. ASX Group, ASX Shares, 01-Sep-2012, http://www.asx.com.au/products/asx-shares.htm ASX Group, Welcome to ASX Education, 01-Sep-2012, http://www.asx.com.au/resources/shareseducation.htm 3. 4. ASX Group, Shares Course, 01-Sep-2012, http://www.asx.com.au/resources/shares-courses.htm ASX Group, Interest Rate Security Courses, 01-Sep-2012, http://www.asx.com.au/resources/interestrate-securities-courses.htm 5. ASX Group, Our Organisation, 31-Aug-2012, http://www.asx.com.au/resources/interest-rate-securitiescourses.htm 6. 7. 8. Investopedia, Exchange, 31-Aug-2012, http://www.investopedia.com/terms/e/exchange.asp Antares Energy, Company Profile, 01-Sep-2012, http://www.antaresenergy.com/about-us/our-strategy/ Australand, About Australand, 01-Sep-2012, http://www.australand.com.au/About-

Australand/company-information 9. Advanced Breaking Technology Ltd., About ABT, 01-Sep-2012,

http://www.advancedbraking.com/about_abt.htm 10. Investopedia, Preference Shares, 01-Sep-2012,

http://www.investopedia.com/terms/p/preference-shares.asp#axzz25CIt4FY7