Paper 06: Introduction to Finance and Investments

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About Course

The Professional courses are administered at Foundation, Intermediate and Advanced Levels. Each level requires an average of one year, though candidates are advised to provide for an additional one year to meet requirements for internship/ practical experience.

A student must book for a minimum of three papers in a level in any order unless is exempted or has credits.

This course is aimed at persons who wish to qualify and work or practice as investment, securities and financial analysts, portfolio managers, investment bankers, fund managers, consultants on national and global financial markets and related areas.

Course Content

Overview

  • course outline
  • course outline

1. Nature and purpose of finance
1.1 Nature and scope of finance and investment 1.2 Financial decision-making process 1.3 Relationship between accounting and finance 1.4 Goals of a firm 1.5 Roles of a finance manager 1.6 Agency theory; conflicts and resolutions

3. The investment environment
3.1 Types of investments 3.2 The investment processes 3.3 Sources of financial and market data: costs and charges: key investor information documents; prospectuses; financial statements; financial data 3.4 Asset classes: Cash Instruments (Cash Deposits, Money Markets); Bonds, Equities, Property, Foreign Exchange (FX) - to cover computation aspects of exchange rate such as spot rates, forward rates 3.5 Investment management function 3.6 Globalisation and investment

2. Financial markets and systems

2. Financial markets and systems

4. The financing decision
4.1 Nature and objectives of the financing decision 4.2 Factors to consider when making financing decisions 4.3 Sources of finance for enterprises: Internally generated (retained earnings) and externally generated finance (equity, loan stock, bank lending, leasing, hire purchase, venture capital, franchising; Short term (trade credit, bank financing, customer advances, factoring, accruals, credit cards, medium (issue of debentures, issue of preference shares, bank loans, fixed deposits, hire purchase, lease financing and long term sources of finance (ordinary shares, preference share capital, retained earnings, debentures, term loans, mortgages, venture capital, asset securitisation, international financing-Euro bonds). 4.4 Advantages and disadvantages of each source of finance 4.5 Factors to consider when selecting the source of finance

5. Valuation of Assets
5.1 Concept of value; book value, going concern value, substitution value, replacement value, conversion value, liquidation value, intrinsic value and market value 5.2 Reasons for valuing financial assets/business 5.3 Theories on valuation of financial assets; fundamental theory, technical theory, random walk theory and the efficient market hypothesis 5.4 Valuation of redeemable, irredeemable and convertible debentures, corporate and treasury bonds 5.5 Valuation of redeemable, irredeemable and convertible preference shares 5.6 Valuation of ordinary shares; net asset basis, price earnings ratio basis, capitalisation of earnings basis, Gordon’s model, finite earnings growth model, Super-profit model, Walter’s model

6. Cost of capital
6.1 Significance of cost of capital to firms 6.2 Factors influencing a firm’s cost of capital 6.3 Components of cost of capital 6.4 Weighted average cost of capital (WACC) 6.5 Weighted marginal cost of capital (WMCC)

7. Time-value of money
7.1 Concept of time value of money 7.2 Relevance of the concept of time value of money 7.3 Time value of money versus time preference of money 7.4 Compounding techniques 7.5 Discounting techniques 7.6 Simple interest and compound interest computations 7.7 Loan amortisation

8. Introduction to risk and return
8.1 Sources of risk 8.2 Components of risk and return 8.3 Relationship between risk and return on investments 8.4 Realised and expected rates of return and risk 8.5 Geometric and Arithmetic rates of return 8.6 Measures of risk and return for a single and two assets case 8.7 Risky and risk-free assets

9. Capital budgeting
9.1 The nature, importance, characteristics and types of capital investment decisions 9.2 Investment appraisal techniques: accounting rate of return (ARR), payback period; internal rate of return(IRR); net present value(NPV), and profitability index(PI) 9.3 Strengths and weaknesses of the investment appraisal techniques

10. Introduction to Islamic Finance
10.1 Principles and trends in Islamic banking 10.2 Differences between Islamic and conventional banking 10.3 The concept of interest (riba) and how returns are made by Islamic financial securities 10.4 Sources of finance in Islamic financing

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