CI12_-_Financial_Mathematics_-_CIFA_Section_I_Premium_Notes.pdf - elab notes library CERTIFIED SECURITIES AND INVESTMENT ANALYSTS PART ONE SECTION ONE

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1 CERTIFIED SECURITIES AND INVESTMENT ANALYSTS PART ONE SECTION ONE STUDY KIT FINANCIAL MATHEMATICS elab notes library Website: maktaba.elab.co.ke WhatsApp: +254 704 986 447 Email: [email protected]
2 Table of contents CHAPTER ONE ................................................................................................................... 3 Introduction to financial mathematics CHAPTER TWO ................................................................................................................. 8 Financial algebra CHAPTER THREE ............................................................................................................ 25 Descriptive Statistics CHAPTER FOUR ............................................................................................................... 53 Time value of money CHAPTER FIVE ................................................................................................................. 85 Financial forecasting CHAPTER SIX .................................................................................................................... 105 Financial calculus CHAPTER SEVEN ............................................................................................................. 115 Probability theory CHAPTER EIGHT .............................................................................................................. 132 Index numbers
3 TOPIC ONE INTRODUCTION TO FINANCIAL MATHEMATICS Nature of financial decision two. a) Managerial decision b) routine decision Managerial decisions These are Decisions that require technical skills, planning and expertise of a financial manager. 1) Financing decision It involves looking for finance to acquire assets of the firm and may include: - Issue of ordinary shares - Long term loan - Preference shares 2) Investment decision invested in order to generate revenue. Financial manager must do a proper appraisal of any investment that may be undertaken. 3) Dividend decision Dividends are part of the earnings distributed to ordinary shareholders for their investment in the company. Financial manager has to consider the following: - How much to pay - When to pay - How to pay i.e. cash or bonus issue - Why to pay
4 4) Liquidity/working capital management decision Liquidity is the ability of a company to meet its short-term financial obligation when they fall due. and to avoid instances of insolvency. receivables in the company. Routine decisions They are supportive to managerial decisions. They require no expertise in executing them. They are normally delegated to junior staff in finance department. They include: - issue of cash receipts - safeguarding the cash balance - safe custody of important finance document (filing) - implementation of control system Financial asset A financial asset is an intangible asset that derives value because of a contractual claim. Examples include bank deposits, bonds, and stocks. Financial assets are usually more liquid than tangible assets, such as land or real estate, and are traded on financial markets. According to the International Financial Reporting Standards (IFRS), a financial asset is defined as one of the following: Cash or cash equivalent; Equity instruments of another entity; Contractual right to receive cash or another financial asset from another entity or to exchange financial assets or financial liabilities with another entity under conditions that are potentially favourable to the entity; Contract that will or may be settled in the entity's own equity instruments and is either a non- derivative for which the entity is or may be obliged to receive a variable number of the entity's own equity instruments, or a derivative that will or may be settled other than by exchange of a fixed amount of cash or another financial asset for a fixed number of the entity's own equity instruments.
5 Risk and return Risk things happening than they are expected.

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