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    Basics of Finance

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    Rintu Sthitadhi David Ray
    Finance involves activities like investing, borrowing, lending, budgeting, and forecasting. There are three main types: personal finance, corporate finance, and public/government finance. Some key concepts in finance include interest rates, yields, dividends, compounding and discounting, present and future value, payment schedules, internal rate of return, and risk versus return analysis.

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    Basics of Finance

    Uploaded by

    Rintu Sthitadhi David Ray
    17 views10 pages
    Finance involves activities like investing, borrowing, lending, budgeting, and forecasting. There are three main types: personal finance, corporate finance, and public/government finance. Some key concepts in finance include interest rates, yields, dividends, compounding and discounting, present and future value, payment schedules, internal rate of return, and risk versus return analysis.

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    Basics of finance

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    Finance involves activities like investing, borrowing, lending, budgeting, and forecasting. There are three main types: personal finance, corporate finance, and public/government finance. Some key concepts in finance include interest rates, yields, dividends, compounding and discounting, present and future value, payment schedules, internal rate of return, and risk versus return analysis.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    17 views10 pages

    Basics of Finance

    Uploaded by

    Rintu Sthitadhi David Ray
    Finance involves activities like investing, borrowing, lending, budgeting, and forecasting. There are three main types: personal finance, corporate finance, and public/government finance. Some key concepts in finance include interest rates, yields, dividends, compounding and discounting, present and future value, payment schedules, internal rate of return, and risk versus return analysis.

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    © All Rights Reserved
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    Download as pptx, pdf, or txt
    of 10

    What is Finance???

     
    Finance is defined as the management of money and includes activities such as investing, borrowing, lending,
    budgeting, saving, and forecasting. There are three main types of finance: (1) personal, (2) corporate, and (3) 
    public/government.
    The easiest way to define finance is by providing examples of the activities it includes. Below is a list of the most
    common examples:

    •Investing personal money in stocks, bonds, or Mutual funds etc or Saving personal money in a high-interest
    savings account- Risk & Returns- maximize the returns and minimizing the risk

    •Financial Markets- NSE, BSE, Equity markets, Bond Markets etc.- secondary markets

    •Borrowing money from institutions by issuing bonds on behalf of a public company or issuing shares to the
    public in an IPO – Financing decisions of corporate finance- Primary markets and the secondary markets.

    •Accepting or rejecting a Investment project- Investing decisions of corporate finance- Risk & Returns- maximize
    the returns and minimizing the risk- Core finance

    •Borrowings & Lending by a Bank- Banking operations- How to understand interest rates- Risk and returms

    •Treasury Operations of a Corporate or a Bank or Investment decisions by Corporates

    •Developing a forecast for government spending and revenue collection- Monetary policies by RBI, Exchange
    rates, Inflation management and taxation related issues – Govt. Finance
    1. Interest rates, Yields & Dividends

    2.Compounding & Discounting- The TVM

    Some Important 3. Present Value (PV) & Future Value (FV)

    concepts in 5. PMT/Annuity

    finance 6. IRR/CAGR/Rate of Return

    7. Risk
    Types of returns

    1. Single period return-


    The return over a single period is: r= (V2- V1 )/ V1

    V2 = final value, including dividends and interest.


    V1 = Initial return,

    For example , if you hold 100 shares with a starting price of Rs 20, then starting value is
    100*20= 2000Rs. If you collect Rs 0.60 per share as cash dividends, and then the ending
    price per share is Rs 20.80, then the end value you have is 100*0.60= Rs 60 in cash plus the
    100*20.80= Rs 2080 in shares giving total end value as Rs 2140. The change in value is
    2140-2000 = Rs 140, so the return is 140/2000 = 0.07 or 7%.
    2. Returns over multi period-

    IF the return over n successive time sub periods are r1, r2 r3 ……., rn , then
    the cumulative return or overall return over the time is :-

    (1+r1)(1+r2)…….(1+rn)-1
    For example, if the last three years return on an investment are 10%, 15%, 18%, then the
    total return for three years would be
    (1+ 10%)(1+15%)(1+18%)-1 = 0.4927= 49.27%
    Compounded Annual Growth rate

    Compound annual growth rate (CAGR) is the rate of return that would be
    required for an investment to grow from its beginning balance to its ending
    balance, assuming the profits were reinvested at the end of each year of
    the investment's lifespan.

    For example, if the investment portfolio has grown from Rs 10000 to Rs 16000
    over 5 years, what is the CAGR?

    PV= -10000
    FV= 16000
    N= 5 years
    R=?
    Time Value of money
    Q1) Find the future value of $1,800 in 3 years at 8%.

    Q2) Find the future value of a 3-year, $300 per year annuity at 6%

    Q3) How much would you have to deposit now to have $15,000 in 8 years if interest is 7%?

    Q4) Find the present value of a 3-year, $500 annuity at 4%.

    Q5) If you borrow $20,000 and pay back in four equal annual instalments of $5,640,
    what interest rate are you paying?

    Q6) You have take a loan of $100000 at 18% per annum and agree to pay EMI for 3 year.
    What will your EMI be?
    • Risk is defined in financial terms as the chance that an
    outcome or investment's actual gains will differ from an
    expected outcome

    Risk can be positive or negative


    There are 2 types of risk :-
    Risk 1. Systematic Risk
    2. Unsystematic Risk
    and
    Return • Return  is the money made or lost on an investment over
    some period of time.

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