Vital Statistics, 2^nd Ed.

Financial Strategy

The Open University

Publisher: The Open University, 1999

ISBN: SUP47233-5

Synopsis:

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Table of Contents:

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• Introduction: a guide to Vital Statistics
• Part 1 Knowledge
1. The Basic Rules of Calculation
• 1.1 Introduction
• Instructions for loading the Windows calculator
• 1.2 Operations with Numbers
• 1.2.1 Use of Brackets
• 1.2.2 Use of Memory
• 1.2.3 Rounding
• 1.2.4 Fractions
• 1.2.5 Reciprocals
• 1.2.6 Ratios
• 1.2.7 Percentages
• 1.3 Probability
• 1.3.1 Combined Events
• 1.3.2 Tree Diagrams
• 1.4 More Difficult Numbers
• 1.4.1 Negative Numbers
• 1.4.2 Indices: Numbers and Powers
• 1.4.3 Exponential Form
2. Algebra, Graphs and Calculus
• 2.1 Introduction
• 2.2 Basic Algebra
• 2.2.1 Simplifying Equations
• 2.2.2 Solving Equations
• 2.2.3 Equations with Two Unknowns
• 2.2.4 Use of Logarithms
• 2.2.5 Natural Logarithms
• 2.3 Graphs
• 2.3.1 Plotting Straight-Line Equations
• 2.3.2 Characteristics of Straight Lines
• 2.3.3 Determining the Equation from the Graph
• 2.4 Calculus
• 2.4.1 First Order Derivatives
• 2.4.2 Second and Higher Order Derivatives
• 2.4.3 Partial Differentiation
3. Statistical Techniques
• 3.1 Introduction
• 3.2 Averaging
• 3.2.1 The Arithmetic Mean
• 3.2.2 The Mode
• 3.2.3 The Median
• 3.2.4 Using Excel to Calculate Averages
• 3.2.5 Averaging from Frequency Distributions
• 3.2.6 Geometric Mean
• 3.2.7 Weighted Average
• 3.3 Measures of Spread
• 3.3.1 Range
• 3.3.2 Standard Deviation
• 3.3.3 Normal Distribution
• 3.4 Sampling
• 3.4.1 Confidence Intervals
• 3.4.2 The Student’s t Distribution
• 3.4.3 Degrees of Freedom
• 3.5 Analysing Relationships Between Data
• 3.5.1 Correlation and Covariance
• 3.5.2 Regression Analysis
• 3.5.3 Line of Best Fit
• 3.5.4 Linear Regression Analysis
• 3.6 Time Series Analysis
• 3.6.1 Seasonal Variation
• 3.6.2 Basic Trend
• Part 2 Application to Financial Techniques
• Introduction
4. Investment Appraisal
• 4.1 Introduction
• 4.2 Time Value of Money
• 4.2.1 Compounding and Discounting
• 4.2.2 Annuities and Geometric Progressions
• 4.2.3 Perpetuities
• 4.2.4 Annualised Rates of Return and Continuous Discounting
• 4.3 Investment Appraisal
• 4.3.1 Net Present Value
• 4.3.2 Internal Rate of Return
• Scale of projects
• Competing projects
• Changing cash flows
• Reinvestment assumption
• 4.3.3 Payback Period
• 4.3.4 Return on Capital Employed (ROCE)
• 4.4 Further Issues in the Use of Net Present Value
• 4.4.1 Relevant Costs and Revenues
• 4.4.2 Adjustment to Reflect Inflation
• 4.4.3 Taxation
• 4.4.4 Profitability Index
5. Cost of Finance
• 5.1 Introduction
• 5.2 Portfolio Theory and the Capital Asset Pricing Model
• 5.2.1 Portfolio Theory
• 5.2.2 Derivations of the Portfolio Equations
• 5.2.3 Minimisation of Portfolio Risk
• 5.2.4 Multi-Asset Portfolios
• 5.2.5 Derivation of the CAPM
• 5.3 Dividend Valuation Model
• 5.3.1 Constant Growth Dividends: The Gordon Growth Model
• 5.4 Bonds
• 5.4.1 Bond Yields
• 5.4.2 Duration of Bonds
• 5.4.3 Convexity of Bonds
• 5.5 The Weighted Average Cost of Capital
• 5.6 Foreign Exchange
• 5.6.1 Buying and Selling Rates
• 5.6.2 Cross Rates
• 5.6.3 Forward Exchange Rates
• 5.6.4 The Four-Way Equivalence Model
• Purchasing power parity (PPP)
• The Fisher effect
• Interest rate parity theory
• 5.7 Financial Options
• 5.7.1 Black-Scholes Model
• 5.7.2 Binomal Model
• 5.7.3 Put-Call Parity
• Appendix A Discount Table
• Appendix B Normal Distribution Table