techniques study of finance
Department of Applied Finance and Actuarial Studies
ACST101 : TECHNIQUES AND ELEMENTS OF FINANCE
TECHNIQUES READING FOR WEEK 1
SIMPLE INTEREST & SIMPLE DISCOUNT
INTRODUCTION TO TECHNIQUES
The first half of the lectures develop the basic techniques required to solve financial problems:
- Simple interest and simple discount which are usually only used for transactions of a short duration.
The price paid for securities purchased in the money market is usually calculated using a simple interest formula although simple discount is sometimes used.
- Compound interest involving single payments and also annuities.
An annuity is a series of payments.
Simple interest is added to an investment at the maturity date. Compound interest is added at regular time intervals and hence the interest added also earns interest.
The second half of the unit applies these techniques to a range of financial transactions:
- Housing loans
Finding the instalment required to repay the loan in a certain time.
Calculating the amount of loan outstanding at any point in time.
Dividing each instalment into principal and interest.
- Bonds and Debentures promise to pay regular fixed interest payments and also a fixed payment on maturity.
Calculating the price which should be paid to achieve a required rate of return allowing for taxation if necessary.
Determining the rate of return if the price paid is given.
- Business Decisions
Business ventures need to be assessed to find out whether the estimated cash flows are sufficient to make the venture profitable.
- Sinking Funds are funds established to accumulate a sum of money by a future date.
Calculating the regular payment to be made into the fund and the balance in the fund at any time.
1
ACST101 Techniques Week 1 Techniques Reading
Copyright Macquarie University
SIMPLE INTEREST
The cost of borrowing money is called interest. It depends on how much is borrowed and for how long, as well as the rate of interest
ACST101 : TECHNIQUES AND ELEMENTS OF FINANCE
TECHNIQUES READING FOR WEEK 1
SIMPLE INTEREST & SIMPLE DISCOUNT
INTRODUCTION TO TECHNIQUES
The first half of the lectures develop the basic techniques required to solve financial problems:
- Simple interest and simple discount which are usually only used for transactions of a short duration.
The price paid for securities purchased in the money market is usually calculated using a simple interest formula although simple discount is sometimes used.
- Compound interest involving single payments and also annuities.
An annuity is a series of payments.
Simple interest is added to an investment at the maturity date. Compound interest is added at regular time intervals and hence the interest added also earns interest.
The second half of the unit applies these techniques to a range of financial transactions:
- Housing loans
Finding the instalment required to repay the loan in a certain time.
Calculating the amount of loan outstanding at any point in time.
Dividing each instalment into principal and interest.
- Bonds and Debentures promise to pay regular fixed interest payments and also a fixed payment on maturity.
Calculating the price which should be paid to achieve a required rate of return allowing for taxation if necessary.
Determining the rate of return if the price paid is given.
- Business Decisions
Business ventures need to be assessed to find out whether the estimated cash flows are sufficient to make the venture profitable.
- Sinking Funds are funds established to accumulate a sum of money by a future date.
Calculating the regular payment to be made into the fund and the balance in the fund at any time.
1
ACST101 Techniques Week 1 Techniques Reading
Copyright Macquarie University
SIMPLE INTEREST
The cost of borrowing money is called interest. It depends on how much is borrowed and for how long, as well as the rate of interest