Analyzing the risk and return of investments.

RMIT Classification: Trusted




Analysing the risk and
return of investments



Financial Planning – Chapters 2 & 4
1 BAFI1

, RMIT Classification: Trusted

Learning Objectives

• Describe the importance of the time value of money
• Determine the present and future values of single and multiple c
flows, and explain the impact which compounding has on any
investment alternative
• Understand the difference between nominal and effective interes
rates




2 BAFI1014

, RMIT Classification: Trusted

Learning Objectives

• Explain why risk measures are important
• Identify the types of risk commonly associated with investments
• Describe how the risk of a portfolio is determined
• Identify the risk characteristics of different asset classes
• Understand how diversification acts as risk-reduction strategy
• Appreciate the diverse characteristics that might describe a clien




3 BAFI1014

, Introduction
RMIT Classification: Trusted




• Financial planning requires specialist knowledge across diverse areas.
• Technical skills are required in terms of investments:
– How they are affected by compounding.
– Their risk attributes.
– Their returns.
– Diversification as a risk-reduction strategy.
– Issues associated with gathering client information.
• Financial planners require strong working knowledge of fundamental mathematical conce
relate to investment and retirement planning.
• These include a basic understanding of
– The nature of compound interest.
– The time value of money.
4 BAFI1014