Foran - Investment Planning & Math Flashcards
Six areas of comprehensive financial plan by FP
FIITRE
Financial management Investment planning Insurance Tax Retirement Estate
Describe financial management in FP
Clients position Cash flow Net worth Budget Goal
Describe investment planning in FP
How to manage based on experience, objectives, horizon, risk
Describe insurance in FP
Strategy to manage risk
3 basic functions of financial plan. CAR
Collect
Analysis
Recommend
Acronym for letter of engagement
Client has CCC client rating and are on the ROPES and need Quick Debt Financing
Compensation Conflict Confidentiality of info Responsibility to provide info Outside professional Process to be followed Expectations, assumptions. Ie inflation Service Qualifications Documents ie wills Future reviews
FP 4 sections of standards of professional responsibility
Code of ethics
Rules of conduct
Fitness standards
Practice standards
FP code of ethics
8 principals to commit to
If not, worse consequence is revocation of CFP
Acronym list codes.
Loyal investment officers conduct financial compliance duties personally
Loyalty to client Integrity Objective Competence Fairness Confidentiality Diligence Professionalism
FP Fitness Standards
Bars to certification
Currently bankrupt
Senior position in bankrupt co within 5 years
Revocation or license suspended 1 year or longer
Guilty to criminal offence
FP practice standards for all client engagement offered
Acronym
REGI ASRRII
Role, ensure client knows role of financial planning,goals, needs Engagement, agree on engagement Goals, identify goals, needs etc Information, gather info Assess, clients current situation Strategies Recommend, develop and prioritize Recommend, present Implementation, discuss implementation Implement
FV =
PV (1 + r)n
How to calculate discount rate
Reverse of ROR
Bring FV back to PV
Holding period ror
HPR=
Sales proceeds - purchase price + net cash flow
Purchase price
Calculate Annualized HPR, if FV not provided
Step 1 calculate FV = (PV + r). R is decimal.
Then use this FV to calculate annual return. Ie. 30 months divided by 12
What is Real Rate of Return
Return after inflation is factored in
Calculate real rate of return
Pretax return - inflation rate
1 + inflation rate
- all decimal
Calculate Real AFTER TAX Rate of Return
1) . After tax amount = pretax return (1 - client tax rate)
2) . Real Rate of Return calculation but use above as return rate
Ie after tax return - inflation
1 + inflation
1* all decimals
Calculate geometric mean return
[(1 + r1)(1 +r2)….(1 + r6)] 1/6 - 1
*** r is decimal
Using TVM for geometric return
1) calculate FV. = PV (1 + r1)(1 + r2)…..(1 + r6)
2) use above FV to calculate return
** r is decimal
Time weighted return assumption
Assumes investors made on deposit at beginning of period. Ie year
What does Internal Rate of Return stand for. IRR
When dollars were invested
Ie. time weighted= beginning of year
How to calculate time weighted IRR
1). Calculate FV by calculating return in each period and adding PV
I.E. $1m (1 + r1)(1 + r2)…..(1+ r6)
2) then use FV to calculate return
Calculate Money Weighted IRR
1). Calculate FV. IE. $1m (1 + r1)(1+ r2)…..(1 + r6)
2) calculate. CF 2nd CLR WORK
CF (PV). Ie $1m +/- Enter
^ 0 Enter
^^ 0 Enter
….. continue for periods
^^ FV ( Calculated above) Enter
IRR CPT
Formula to Calculate Effective (Compound) Rate of Return
E = (1 + r)^m - 1
How to calculate Effective Annual Rate of Return
1) . Convert annual rate to period. Ie quarterly. Ie. 12% / 4
2) . The use formula of (PV + above)^number of periods - 1
How to calculate Effective Annual Rate of Return on calculator
(Period growth) y^x (number of periods in year) - 1
What a client wants to receive payments that don’t encroachments on capital. How would you calculate
Payment / return
Mortgage interest factor calculation
Semi annual interest with monthly payment
(1+ I/2)^ 2/12
Calculate Overall profit/Loss Canadian $
= sales proceeds x exchange rate (cdn) - purchase costs x exchange rate (cdn)
Calculate percent return on foreign investment in Cdn $
Profit/loss Purchase cost (cdn). X 100
Define strategic asset allocation
Long term, portfolio fixed. Ie 5% cash, 15% bonds
Define dynamic asset allocation
Rebalancing regularly
Define tactical asset allocation
Tilt portfolio away from strategic to take advantage of short term opportunity
Cash investment includes
Gic , bonds and mortgages under 1 year
Often 5%
Money market
Fixed income includes
Gic, bond and mortgage over 1 year
Preferred shares
Held for income
Convertible bonds and preferred shares
Equity securities includes
Income trusts - promise to pay investor 90-95% of free cash flow
Derivatives, rights, warrants, calls and puts
What are MM instruments
Short term debt issued by government and corps
Types of government mm
Treasury bills
Type of Corp mm
Commercial paper - sort term unsecured debt
Asset backed commercial paper- short term secured
Bankers acceptance - short term and backed by bank * safest
T bill yield calculation
Face value- price (100). X. 365. X. 100
Price. Days to maturity
Are bonds and debentures (fixed income) secured
Bonds are but debentures are not
Who issues bonds and debentures
All levels of government
2 categories of government of Canada bonds
Redeemable
Marketable
What are Gov of C redeemable bonds
Can cash anytime, not transferable, no secondary market
CSB and Canada premium bond, premium has higher rates
Premium can be bought at bank, savings through payroll
Must be held at least 3 months
If redeemed early, savings pay interest to end of previous month, premium to last anniversary
When was last Canada savings or premium bond issued
2017, will matured in 2020
What are gov of Canada marketable bonds
Offered through auction
Backed by cdn government, also backs crown Corp
Market price fluctuate
Mostly sold to institutions
