BU111 SI Final Exam Review Worksheet: Dec 4 - Dec 8 ECONOMIC FACTORS Bonds Definition: debt secuirty in which the issuer owes the bondholder money Bond Characteristics Company – borrowing moneuy 4.5 – coupon rate 2022 – maturity date 97.24 - price Yield Definition: a percentage return on investment Formula: Yield = what you made/what you paid (interest + Capital Gain) / What you paid = x% Interest = Coupon rate x FV Capital gain = (FV – price paid) / maturity date Practice Question: Calculate the approximate yield to maturity on the following bond: Apple 7.20 of 05/31/2030 at 98.50 Assume the bond was issued in 2020 on the same day of the year that it was initially issued (use full years in calculating time to maturity) VENT Process Variables: list out all the variables given/needed Equation: write out the equation you are going to use Numbers: sub the given numbers into the equation Therefore: finish off with a therefore statement V: FV = $1000 Coupon rate = 7.20% Price Paid = $98.50 -> 98.5 x 1000% = 985 Maturity Date = 10 years Yield = ? E/N: Interest = 7.20% x $1000 = 7200 Capital Gain = (1000- 985) / 10 = 1.5 (7200 + 1.5) / 985 = 7.31 % Stocks Going Long vs. Buying on Margin Going Long – Using only, you money to buy stocks - Sell stocks when they increase in value - Buy low sell, high Buying on Margin - Using your money + borrowed money to buy stocks - Sell stocks when they increase in value - Buy low, sell high - Rules: o Qualify for margin account (ex. min margin requirement) o Hypothecation agreement (pledging securities as collateral) o Investors % equity > minimum margin requirement Practice Question 1: Apple is trading at $40.00 per share. You have $400 to invest. You sell at $60 one year later. What is the capital gain if you go long and purchase this stock with only your money? What is the percentage yield? Practice Question 2: Starbucks is trading at $50.00 per share. You have $3,000 to invest. The minimum margin requirement is 75%. Annual interest on the margin loan is 10%. You sell at $55 three months later. What is the capital gain if you utilize the full margin and borrow funds from the broker? What is the percent yield? 6.9% Time Value of Money Practice Question 1: The iPhone 12 just came out for $1,200 and you are glad that you have exactly enough money to make the purchase. Assuming you deposited a lump sum 3 years ago, what amount did you deposit into your bank account? The interest rate was 2.5%. Practice Question 2: You want to buy your friend a nice birthday present exactly 1 year from now so you deposit $500 into your bank account today in hopes to save some money. Assume a 5% interest rate. How much will you have to spend on the present? Practice Question 3: If you deposit $5,500 at the end of each year for 10 years into an account that earns 3% interest compounded annually, how much will you have at the end of 10 years? Practice Question 4: You are looking to invest your money and are looking into different investment opportunities. One annuity you found pays $250 each month at the end of the month for 7 years. The interest on this investment is 11% compounded monthly. What is the maximum amount you would be willing to pay for today? Practice Question 5: You are planning on taking a year long trip to Italy in 5 years. You want to have $15,000 saved before you leave. How much do you have to deposit into an account that earns 5.5% interest each year starting today? Assume annual compounding. Practice Question 6: You just won the lottery! The prize is $2000 paid at the beginning of the year for the next 10 years. What is the value of the lottery annuity today with an interest rate of 4.4%? Practice Question 7: How much would you pay for an Alphabet 6.0 that matures in 5 years if the yield (prevailing rate) on similar risk bonds issued today is 7%? Assume FV=1000 (1000x0.06) / 2/year = $300 semi annual payments Practice Question 8: You plan on retiring 40 years from today and spend time in retirement playing ‘Among Us’. In order to attain your goal of retiring comfortably, you plan on making monthly deposits into a savings account starting at the end of the month. As soon as you retire, you hope to purchase your dream car for $25,000 with cash. After that, you will need $6,000 each month to live comfortably. You predict that you will die 20 years after retirement. Savings account rate is 5% compounded quarterly. How much must you save each month to make this possible? Find the value of the $25,000 + $6,000 per month for 20 years at the time of retirement (PRESENT VALUE) Figure out what you must save from each month for the next 40 years to get the above value (FUTURE VALIUE) Practice Question 9: You and your golden hawk soulmate have decided to purchase a house in Waterloo that you can live in for the next three years and then rent to students. The house you purchase is $265,000 and you make a down payment of $35,000. Interest is 6.50% compounded semiannually. The mortgage has an amortization period of 25 years. What is the size of your monthly mortgage payment (assuming you begin payments at the end of this month)? SOCIAL FACTORS Overview of Social Factors: What is the significance of studying social factors?: Why Do We Study Demographics? - Powerful predictor of behavior and trends Certainty and simplicity of age data (analyzing environment, demographic is easy to source, easy to use and accurate) Predicts supply and demand Defining The Cohorts (CSR – Corporate Social Responsibility) Factors Characteristics Implication Economics (inflation, boom vs. Depression? Debt? Interest rate?) Values and priorities (Valuing quality of product, valuing ethics, security, possessions – material or experience, convenience – Tims vs coffee shop) How to attract, retain, motivate (competitive wage, better benefits, work from home, company message) Technology (comfort level: Tech Savvy, recession) Lifestyle (frugal or extravagant) What makes a product appealing (apple (focus on quality/features) vs dollarstore, knowing its worse quality) World events (CSR, Environment) Habits (digital and other) (communication – social media – growing up on social media? Facebook messages vs Discord, budget, tendencies) How to attract as customers (focus on quality or discount) Parenting (strict, linear, helicopter parent, bulldozer Mindset (high vs low spending, consuming) How much they spend and what they spend on parent – pave path for children/controlling) (essentials vs luxuries) 1. Identify 3 factors that Gen Z value. 2. What does that mean for employers trying to attract new talent? 3. List 2 strategies they should use to attract gen z? 1. Values: Meaningful work, work-life balance, CSR, competitive wages, several careers, digital native – tech 2. What does that mean for employers: flexible schedule, opportunity for growth, performance reviews for feedback, sustainability, interesting work 3. Attract Gen Z: company benefits, good work place Practice Question 1: You and your golden hawk soulmate have decided to purchase a house in Waterloo that you can live in for the next three years and then rent to students. The house you purchase is $265,000 and you make a down payment of $35,000. Interest is 6.50% compounded semiannually. The mortgage has an amortization period of 25 years. What is the size of your monthly mortgage payment (assuming you begin payments at the end of this month)? Practice Question 2: A trend within the Canadian labour force has been that there are fewer incoming workers than outgoing. Is this an opportunity or threat? Explain the implications of this trend and 2 actions you can take as a hiring manager of your company. - Threat – potential labour shortages, increase of issues involving seniors (demand for healthcare and pensions) - Actions: marketing companies values and missions, meaningful and flexible work, lobbying for immigration – make sure workplace is open for immgrants TECHNOLOGICAL FACTORS What is technology? Information tech advancements (google docs, cloud) + internet + equipment and material advancements – substitute human effort; reduce cost; improve performance; improve everyday life (mechanical pencil, swiffers) Key concepts: Installed Base # of users Instagram has 1 billion users (new social media w smaller base – not intriguing) Complementary Goods Add ons that add value to the main product Videos games to a console (more games, more use out of console) Technology Standards Enable compatibility of complementary goods IOS Software enables compatibility for iPhone and apps Network Effect The value increases as the # of users increases Social media (Facebook) Clubs (more valuable if more people are there) Lock-In Size of your initial investment Purchase XBOX, games, controllers Apple ecosystem: Macbook, iphone, airpods, apple pencil Switching Costs Costs of moving to a diff. tech Switching phone plans Switch from XBOX – PS4 = learn new system Disruptive vs. Sustaining factors Fill in the blanks: NETFLIX DISNEY+ Characteristic Disruptive Technology Sustained Technology Value Innovation is a game-changer within the industry Changes are incremental (lower price, performance improved, etc.) Target Market Speed Market Predictability Business Methods New NICHE Market Existing market, innovation is anticipated mainstream (highmargin market) (lower risk for a well-established company) May be slower at first, then quickly exceeds sustained technology Stable changes (no rapid evolution, small simple new features) Market is unpredictable Market is predictable (mainstream – following an already successful market) Traditional methods fail (had to convince people to switch to a completely new way to watch TV) (More intense marketing) Traditional methods are sufficient (use status quo to sell, traditional ads) Large vs. Small Firms Reasons why large firms fail: - Organizational size and capabilities slow response time - Focus on satisfying mainstream customers (more guarantee/safety on return) - Avoid small, uncertain, unfamiliar markets How to avoid failure: - Monitor outside of industry - Partner with young firms - Establish venture units - Design by job not customers (customers don’t know what they actually want) o How do I accomplish that job better, not make a better product How do small firms compete? - Enter with a. product or market that large firms don’t care about o Not mainstream o Not what they’re good at o Small margins/market - Already risky by being new venture – less risk for entering new market (disruptive tech) since large firms won’t want to take that risk Practice Question 1: Explain why Airbnb is a disruptive technology? Provide one reason why hotels may have failed to compete against Airbnb? What could hotels have done to prevent this? - Reason: everything is within one app, customers can see prices before the book, compare with different places in different, targeting niche market of travelers on a budget - Reason: - How hotels can avoid this: Is Tech an Opportunity or a Threat? Common Opportunities 1. products (more innovation) 2. improved information use/sharing 3. can be competitive advantage 4. lower barriers to entry 5.customization Common Threats 1. imitation 2.new technologies/entrants 3.information overload 4.security 5.disconnected employees/customers Practice Question 2: Identify and explain one way technology can be an opportunity to build employee commitment and one way it can pose a threat to building employee commitment. - Opportunity: =Easier to share work online, more productive - Threat: Remote work – less engagement within work community, not working in office, less connected Do It Yourself Activity: Key Success Factor Creating a Distinct Competitive Advantage Building Quality Products & Services Gaining Employee Commitment Opportunity Threat Meeting Customer Needs Encouraging Creativity & Innovation Achieving Financial Performance POLITICAL FACTORS How does the Government Impact the Business Environment? - Service provider o Canada post - Business support o Subsidies/trade agreements - Laws/regulations o Pollution laws, copyright laws - Taxation agent o Sales tax, income tax, property tax Types of Ownership Characteristic Sole Prop. Partnership Private Corp Public Corp Ease of Formation Simple, inexpensive Simple, inexpensive, optional partnership agreements Straightforward , relatively inexpensive Complicated, expensive Regulations Few Few Relatively few Many Control Complete (1) Shared (2+) Shared w/ other shareholders (1-49) Board of Directors / management (unlimited) Resources & Capabilities What the owner brings What the owner brings Whatever the owners bring Can afford the buy them Taxation Taxed as personal income Taxed as personal income (split) Private corporation rates Taxed separately from shareholders Liability Unlimited Unlimited (unless limited partner) Limited to investment Limited to investment Practice Question: Jen and John have been wanting to open up a bakery in their town for a while. They pool all of their money together but realize they don’t have enough to open it up. On top of this, they’ll need other people to help run the daily operations. John is very risk averse, and doesn’t care to make management decisions. What type of ownership should Jen and John consider when opening up? Why? - They should consider additional partners + form a partnership. Jen should be a general manager & John should be a limited partner - New partners will allow them to gain the additional resources & people they need to start/operate the business. By being a limited partner, John will only be liable for the amount he has invested (he is risk averse) and he doesn’t have to make management decisions What Are The Characteristics of a Social Enterprise? International Business / Expansion Indirect Export: Bob sells his t-shirt to a third party who then has full control over them and sells them to China Licensing and Franchising: Dan pays Joe to gain rights over his intellectual property to produce and sell pies using Joe’s recipe Sales Agent / Distributor: Suzy manufactories her own soap product domestically, works with a person in Florida that has network to distribute/sell the products there Foreign Subsidiary: Chris has opened up a factory in Australia and has established a distribution channel to sell his products Sales Office: Ann domestically manufactures pencils and ships them abroad to an office that will sell them to that market Joint Venture: Tom and John are going to provide mutual benefits to each other’s business Study / Exam Tips ● Use the exam review guide to structure your studying!!!!!!! ● Use learning objectives to make your own questions and practice writing answers ● Understand the concepts rather than just memorize ● Relate concepts to frameworks! (KSFs, Diamond-E, Porter’s) ● Budget your time (Ex. 83 marks = 1.5 minutes per mark) ● Bullet points! ● Relax… you’ve got this :) Good Luck!!
