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Objectives of Financial
management
Profit maximisation/EPS
Wealth maximisation
After tax operational profits of a firm less the cost of funds used to
finance investments
Focus on stakeholders
Learning Objectives
Explain the meaning of the time value of money and the
importance of the timing of cash flows in making financial
decisions
Calculate the future value and present value of cash flows for
one period and multiple periods
Solve for the interest rate implied by a given set of present
value and future value cash flows
Apply time value of money techniques to solve basic problems
facing financial managers
Use a calculator/excel sheet to solve time value of money
problems
Techniques
Measurement of risk
Sensitivity analysis
Probability distribution
Standard deviation
Co-efficient of variation
Portfolio risk
Correlation/covariance
Diversification
Systematic risk
Non diversifiable/unavoidable
Unsystematic risk
Diversifiable/ avoidable
CAPM
Efficiency of market
Assumptions
Investor preferences
Measure of risk
Valuation of bonds/debentures
Illustration
Time to maturity
RR
Bond value
Constant RR
Changing RR
Yield to maturity