THOUGHT FOR THE SESSION The pessimist complains about the wind, - - PDF document

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NQF 5 Learnership: Allan Gray

THE ACADEMY OF FINANCIAL MARKETS

WELCOME TO THE SESSION!

THOUGHT FOR THE SESSION

The pessimist complains about the wind, the optimist expects it to change, the visionary adjusts the sails.

Financial Markets

Course admin:

Please remember assignments to

learner@academyfm.co.za; not to lecturers

Financial Mathematics:

Debt market calculations (interest) General financial calculations Share calculations

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Financial Markets

Interest rate calculations:

Simple interest vs. compounded interest Normal interest calc:

Capital x Interest rate x period = interest

Example: An investor invests R 100 000 at

a rate of 8% per year. How much interest does he earn in the first month?

100 000 x 8% x 1/12

= R 666.67

Financial Markets

Interest rate calculations:

Simple interest vs. compounded interest

Simple Interest on capital only Compounded interest on interest + capital

(gives a higher effective rate)

See example and Exercise 1

Fixed vs. floating rates

Fixed interest rate = same payment every

month

Floating interest rate = monthly payment

changes with an interest rate change

Financial Markets

Interest rate calculations:

Important floating rate in SA:

Repo vs. Prime vs. Jibar

Example of fixed rates:

Bond coupon rates, Retail bond rates etc. (See newspaper on next slide)

Example of R157 characteristics: Bond Type Issuer Coupon rate Redemption date Interest payment dates R 157 F REPUBLIC OF SOUTH AFRICA 13.5 15-Sep-16 15 MAR / 15-Sep

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Financial Markets Financial Markets

Interest rate calculations:

Time value of money principles based on

interest rates Example in handouts

Future values – Capital plus interest

Investments earn / Loans are charged a

certain compounding interest rate, Compounding periods of rates are NB!

See table in notes

Financial Markets

Interest rate calculations:

Future value – formula, financial calculator

and Excel

Exercises in Excel Exercise 2 Present value – formula, financial

calculator and Excel

Excel examples Exercise 3

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Financial Markets

Interest rate calculations:

Loans, finance and mortgage bonds:

Calculating a monthly payment – Example in

notes

Deposits and residuals Amortization schedule

The interest portion of a specific payment

Change in interest rates Exercise 6 Excel example of amortisation table

Financial Markets

Interest rate calculations:

Annual effective rates:

See Excel example Excel exercise

Exercise 5

ROI and AROI

Excel examples and exercise 4 Nominal vs. effective rates – Formula, financial

calculator and excel example

Exercise 4

Financial Markets

Interest rate calculations: ROI and AROI

Mr F buys 100 Sasol shares at R 330 per share on

1 November 2011. He pays brokerage of R 110 on this transaction which he sees as part of his investment amount. He receives dividends of R 2 per share on 30 Nov and sells the shares at R345 per share on 15 Dec. He pays brokerage of R 105

• n sale of the shares. What was his ROI and

AROI

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Financial Markets

Equity and financial market calculations:

Earnings per share Price/earnings ratio (PE ratio) Excel examples Excel exercise