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 1
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: Coupon Redemption Interest payment Bond Type Issuer rate date dates REPUBLIC OF 15 MAR / SOUTH R 157 F AFRICA 13.5 15-Sep-16 15-Sep 2
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 3
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 on sale of the shares. What was his ROI and AROI 4
Financial Markets � Equity and financial market calculations: � Earnings per share � Price/earnings ratio (PE ratio) � Excel examples � Excel exercise 5
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