INV2601 - Summarised Notes

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Examination
 Duration – 2 hours
 40 multiple choice questions.
 Total marks = 40
 Tested on study units 1 – 15 (Topic 5 study unit 16,
excluded)
 Not provided: interest factor tables and formula sheet
 Examination includes both theory and calculations
 Mark composition:
Questions Percentage
Theory 14 35%
Calculations 26 65%
Total 40 100%

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Examination
 The following questions will be tested from each topic:
Questions

Topic 1 The Investment 14
Background
Topic 2 Equity Analysis 4

Topic 3 The Analysis of Bonds 8

Topic 4 Portfolio Management 14

Total 40

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TOPIC 1
THE INVESTMENT BACKGROUND

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CHAPTER 1: INTRODUCTION
 An investment is:
 a current commitment of money, based on fundamental research
 to real and/or financial assets for a given period
 in order to accumulate wealth over the long term
 Goal of investment management
 Find investment returns that satisfy the investor’s required rate of
return
 Required rate of return – is the return that should compensate
the investor for:
 Time value of money during the period of investment
 The expected rate of inflation during the period of investment
 The risk involved

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Required Rate of Return
 To determine the required rate of return:
 The investor has to determine the nominal risk free rate
of return
 Then add risk premium to compensate for the risk
associated with the investment
 NRFR =[(1 + RRFR)(1 + EI)]
Where: RRFR = real rate of return (in decimal form)
EI = expected inflation (in decimal form)
 RRFR = (1 + NRFR) – 1
(1 + EI)