principles and analysis.
Section I: Time Value of Money
Investment advisors and consultants must understand the mathematics behind the concepts in the area of time value of money. They should be able to perform calculations by hand or with the help of a spreadsheet, computer program, or on their financial calculator. Simply understanding the intuition is not enough…the ability to calculate and apply are essential. The readings in this chapter explain each concept and provide numerous mathematical examples. Exercises and questions will help readers apply these formulae to solve practical problems in finance.
Part I Foundations and Applications of the Time Value of Money: The Basics of the Time Value of Money
Learning Objectives
■ Explain the concept of the time value of money; and describe compounding, discounting, present value, and future value.
■ Express present value and future value in an equation, and calculate each when given a fact pattern or problem to solve.
■ Discuss frequency of compounding and explain the annual percentage rate (APR).
■ Solve problems converting and comparing interest rates based on monthly, quarterly, semiannual, and annual interest payments.
Part II Foundations and Applications of the Time Value of Money: Don't Discount Discounting
Learning Objectives
■ Describe discounting and express through a formula solving for present value (PV).
■ Solve for present value using various inputs for future value, time, and discount rate.
■ Solve for present value using different compounding periods.
Part III Foundations and Applications of the Time Value of Money: Cash Happens
Learning Objectives
■ Calculate the value of a stream of future cash flows.
■ Define and calculate the value of a perpetuity.
■ Differentiate between an ordinary annuity, an annuity due, and a deferred annuity.
■ Calculate the value of an ordinary annuity and an annuity due.
Part IV Foundations and Applications of the Time Value of Money: Yielding for Yields
Learning Objectives
■ Describe annual percentage rate (APR).
■ Solve problems converting different rates and compounding periods into APR.
■ Describe effective annual rate (EAR).
■ Solve problems by calculating the EAR.
■ Solve for the unknown interest rate (i).
■ Solve for the time-weighted return and money-weighted return.
■ Explain the Rule of 72 and the Rule of 69 and apply either to solve problems.
Part V Foundations and Applications of the Time Value of Money: Using Financial Calculators
Learning Objectives
■ Adjust the number of digits displayed.
■ Adjust the frequency of payments as appropriate.
■ Clear the function registers after each problem.
■ Identify the time value of money keys including: n, i, PV, PMT, and FV.
■ Solve for: n, i, PV, PMT, and FV.
■ Identify the cash flow keys including: CF, I, NPV, and IRR.
■ Solve for: CF, I, NPV, and IRR.
■ Check the timing of the cash flows using the beginning and end functions.
Part VI Foundations and Applications of the Time Value of Money: Formulas
Learning Objectives
■ Describe the concept, notation, and application of various formulas.
■ Solve problems by calculating (using) various formulas.
Section II: Economics
Investment advisors and consultants should not only understand basic economic principles, but they should possess the skills necessary to analyze economic data. Using this knowledge they may revise investment recommendations and/or make appropriate portfolio adjustments if applicable. While drawing definitive conclusions from this analysis is often difficult, investment professionals should benefit by considering possible implications and overlaying this new filter of information over a fundamental, technical, or behavioral framework for constructing and managing investment portfolios.
The readings that follow discuss economic concepts and principles, the U.S. monetary system and the Federal Reserve System, business and economic cycles, and analysis of measurements designed to reflect or predict economic activity.
Part I Handbook of Finance: Monetary Policy – How the Fed Sets, Implements, and Measures Policy Choices
Learning Objectives
■ Explain the purpose and structure of the U.S. Federal Reserve System (the “Fed”).
■ Describe the mandated goals of the Fed.
■ List and describe key economic influences on Fed policy including: nonfarm payrolls, industrial production, housing starts, motor vehicle sales, commodity prices, the employment cost index, and nonfarm productivity growth.
■ Define monetary policy and differentiate from fiscal policy.
■ Describe and explain how monetary policy is implemented.
■ Discuss the impact of monetary policy and its influence on the economy and financial markets.
■ Discuss the issue of global credibility and confidence in central banks worldwide.
Part II The Trader's Guide to Key Economic Indicators: Introduction
Learning Objectives
■ Describe the business cycle and discuss the history of U.S. business cycle durations.
■ Discuss the history and relationship between gross domestic product (GDP) and recessions in the U.S.
Part III The Trader's Guide to Key Economic Indicators: Gross Domestic Product
Learning Objectives
■ Define and describe gross domestic product (GDP).
■ Compare and contrast GDP to gross national product (GNP).
■ Discuss the composition of U.S. GDP.
■ Describe implicit price deflators and solve for annualized inflation.
■ Describe the impact of inflation on GDP and discuss real and nominal GDP throughout history.
■ Discuss the history and explain the importance of consumption expenditures on the economy.
■ Discuss the history and explain the importance of investment spending on the economy.
■ Discuss the history and explain the importance of government spending on the economy.
■ Discuss the history and explain the importance of net exports on the economy.
■ Discuss the history and explain the importance of final sales on the economy.
■ Discuss the history and explain the importance of corporate profits on the economy.
■ Describe the output gap and how it impacts an economy's growth and productivity.
Part IV The Trader's Guide to Key Economic Indicators: Indexes of Leading,