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Investment planning


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An introduction to investment planning

Published in: Economy & Finance, Business
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Investment planning

  1. 1. Investment Planning
  2. 2. Agenda for Today <ul><li>Investment Returns </li></ul><ul><ul><li>Types and Their Calculations </li></ul></ul><ul><ul><li>Tutorials </li></ul></ul><ul><li>Time Value of Money </li></ul><ul><ul><li>Concepts and Applications </li></ul></ul><ul><ul><li>Annuities </li></ul></ul><ul><ul><li>Tutorials </li></ul></ul><ul><li>Risk </li></ul><ul><ul><li>Sources </li></ul></ul><ul><ul><li>Measuring Risk </li></ul></ul><ul><ul><li>Risk Tolerance </li></ul></ul>
  3. 3. Components of Return <ul><li>Current Return </li></ul><ul><ul><li>Income </li></ul></ul><ul><ul><li>Periodic Cash Flow </li></ul></ul><ul><ul><li>Dividend & Interest </li></ul></ul><ul><li>Capital Return </li></ul><ul><ul><li>Price Change </li></ul></ul><ul><ul><li>Price Appreciation or Depreciation/Beginning Price </li></ul></ul><ul><li>Total Return = Current Return + Capital Return </li></ul>
  4. 4. Measuring Investment Returns <ul><li>Holding Period Return </li></ul><ul><li>Simple Arithmetic Return </li></ul><ul><li>Weighted Arithmetic Return </li></ul><ul><li>Geometric Return </li></ul><ul><li>Tax Adjusted Return </li></ul><ul><li>Taxable Equivalent Return </li></ul><ul><li>Real Rate of Return </li></ul><ul><li>Time Adjusted Return or Internal Rate of Return </li></ul>
  5. 5. Tutorials & Clarifications <ul><li>Excel Based Calculations </li></ul><ul><li>Tutorials </li></ul><ul><li>Calculate the various returns based on the following data: </li></ul>Year Investment Value 1 250000 2 318047 3 275467 4 351435 5 432075 6 425975
  6. 6. Time Value of Money <ul><li>Simple Interest </li></ul><ul><li>Compound Interest </li></ul><ul><li>Doubling Period </li></ul><ul><li>Tripling Period </li></ul><ul><li>Growth Factor & Future Value Calculation </li></ul><ul><li>Discount Factor & Present Value Calculation </li></ul><ul><li>Calculations </li></ul>
  7. 7. Annuities <ul><li>Annuity Types </li></ul><ul><ul><li>Ordinary Annuity </li></ul></ul><ul><ul><li>Annuity Due </li></ul></ul><ul><li>Future Value of Annuity </li></ul><ul><ul><li>FV A = A [(1+r) n -1]/r </li></ul></ul><ul><li>Present value of Annuity </li></ul><ul><ul><li>PVA = A[1-(1/(1+r) n ]/r </li></ul></ul>
  8. 8. Annuity Continued <ul><li>Annuity Due = Ordinary Annuity x (1+r) </li></ul><ul><li>Present Value of a Perpetuity </li></ul><ul><li>Intra Year Compounding & Discounting </li></ul><ul><li>Calculations </li></ul>
  9. 9. RISK <ul><li>Sources of Risk </li></ul><ul><ul><li>Business Risk </li></ul></ul><ul><ul><li>Interest Rate Risk </li></ul></ul><ul><ul><li>Market Risk </li></ul></ul><ul><li>Measuring Risk </li></ul><ul><ul><li>Standard Deviation </li></ul></ul><ul><ul><li>Variance </li></ul></ul><ul><ul><li>±1 σ = 68.3%; ±2 σ = 95.4%; ±3 σ = 99.7% </li></ul></ul>
  10. 10. Standard Deviation in Images
  11. 11. Risk Tolerance <ul><li>Age </li></ul><ul><li>Time </li></ul><ul><li>Commitment </li></ul><ul><li>Peer Pressure </li></ul><ul><li>Self Awareness </li></ul><ul><li>Conservative </li></ul><ul><li>Moderate Risk </li></ul><ul><li>Aggressive </li></ul><ul><ul><li>I personally don’t believe in the above or any such classification – Go Goal Based </li></ul></ul>
  12. 12. That’s it for Today <ul><li>Discussions, Opinions & Queries </li></ul><ul><li>THANK YOU </li></ul>