Week 1 Preparation: Lecture 12:28
❏ Essential Reading: Chapter 1 and sections 2.1, 3.1, 4.1, 4.2, 4.5
WEEK 1 - INTRODUCTION TO CORPORATE FINANCIAL MANAGEMENT & TIME VALUE OF
MONEY
LECTURE NOTES
Finance is a scientific field that deals with the allocation of assets and liabilities over a period of
time. It can be defined as money management.
Corporate Finance deals with capital structure of firms and sources of funding.
Basic Concepts
- Inflation
- Sustained increase in [general price level (consumer price index: CPI)]
- Inflation = % Δ (change) in CPI
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Example:
Growth
- Growth = % Δ in Real Gross Domestic Product (RGDP)
- If Growth is positive, we can say the economy is growing.
- If Growth is negative, we can say the economy is sinking.
- Recession: A negative economic growth for two consecutive quarters.
Stock Price Index
- Stock Price Index is a measurement of the value of a section of a stock market.
Stock Price
Return on Stock Price
- Return = % Δ in Stock Price
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- Where Pt = Price of the stock at time t
- Where Pt-1 = Price of the stock one period before
- Where Ct = Dividend given by an organisation at time t
Elasticity
% Δ in quantity demanded / % Δ in price
Interest Rates (Nominal and Real)
- Real Interest Rate = Nominal Interest Rate - Inflation
- If inflation is above 3%, then RBA (Reserve Bank of Australia) increases the
interest rate
- If inflation is below 2%, RBA decreases the interest rate
Monetary Policy
Capital Asset Pricing Model (CAPM)
Simple and Compound Interest
- NOTES IN NOTEBOOK