【正文】 est rate that makes the present discounted value of both flows equal solves The solution r to this equation is the APR ? ? ? ?? ??? ? ??nk tkmk tkkk rArA139。10+163。10 of interest is paid per year Over 5 years the total payments on the loan are 163。100 at 10% Annually (m = 1) 110 Semiannually (m = 2) Quarterly (m = 4) Monthly (m = 12) Weekly (m = 52) Daily (m = 365) Continuous (m = ) ?rTe100Effects The difference between 163。100 at a rate of 10% for one year implies a total repayment of ? ? 110163。) until you39。 and 39。s referred to as a 39。t move home it39。repayment39。term39。ll hopefully pay off the loan at the end of the term. Mortgage types Capital and interest mortgages Interestonly repayment mortgages Other loans Bridging loans Section 6 rates Flat rates APR Interest and Interest Rates Some basic information on interest rates Bank of England base rate – Set by Moary Policy Committee – Provides a basis for other rates – Noone can trade at a lower rate (arbitrage) Objectives of the MPC – To control the rate of inflation (target band) ? Increase in interest rate reduces demand ? Reduction in interest rate stimulates demand – Base decisions on economic data Other Important Rates LIBOR: London Interbank Offered Rate – The rate at which banks are willing to lend to each other – The basis for many financial calculations Mortgage rates – Mortgages are the safest form of lending to individual so have lowest interest rates – Market rate is determined by petition between lenders Other Important Rates Personal loans – Loans for purchases other than property (more risk) – Higher interest rate than mortgages – More variation in interest rates than for mortgages Collateral – Secured loan: an asset is held as collateral – Unsecured loan: no collateral – Interest rate is lower on a secured loan Interest Rate Calculations To understand interest rates, need to go some through some basic calculations Interest is pounded at a specified interval The interval can make a difference – Assume interval is one year – Then borrowing 163。 ????? rCompounding Interval Now consider what happens if we pound interest more frequently – If every 6 months, then rate of 10% for a year bees 5% for six months so – If pounded every 3 months – The general formula for interest at rate r pounded m times a year for n years on a loan of L is ? ? ? ? ? ? 1 0 0111 0 0 2 ??????? rr? ? ? ? ? ? ? ? ? ? 1 00 2 0 011111 0 0 4 ??????????? rrrrmnmrL ?????? ?1Continuous Interest Continuous interest is the limit of more frequent pounding: Frequency Repayment Cost of 163。100 borrowed for 5 years, with a flat rate of interest of 10% – This means 163。10+163。150 The repayment structure is 5 payments of 163。1Example 1 Receive 163。100 at t1 = 0, receive 163。100 is received at time 0 Five payments of 163。 APIC 2,000 n/a 2,000 Total Assets 9,500 190 10,450 RE 2,100 n/a 2,760 Total 4,100 n/a 4,760 Total L amp。 APIC) – Pay more in dividends (reduce Add. To RE) – Increase cash account Growth and External Financing At low growth levels, internal financing (retained earnings) may exceed the required investment in assets As the growth rate increases, the internal financing will not be enough and the firm will have to go to the capital markets for money Examining the relationship between growth and external financing required is a useful tool in longrange planning The Internal Growth Rate The internal growth rate tells us how much the firm can grow assets using retained earnings as the only source of financing. %0671..bR O A 1bR O A R a t eG r o w t h I n t e r n a l?????????The Sustainable Growth Rate The sustainable growth rate tells us how much the firm can grow by using internally generated funds and issuing debt to maintain a constant debt ratio. %1 7 9 2.6 0 3 5 1 6 0 3 5 1 7.bR O E1bR O E R a t eG r o w t h eS u s t ai n ab l?????????Determinants of Growth Profit margin – operating efficiency Total asset turnover – asset use efficiency Financial leverage – choice of optimal debt ratio Dividend policy – choice of how much to pay to shareholders versus reinvesting in the firm Section 13 Financial Appraisal Three main areas(limited in HND textbooks) Financial structure Liquidity Profitability Financial structure(Gearing) Assets(Capital that is injected into the business)=Equity+Debt The relationship between equity and debt is important, which decides the borrowing potential and the ablity to repay the mercial loans. Capital gearing ratio Capital Gearing Ratio=Liability/Owner’equity An investment ratio that pares the borrowing made by a pany with the finance contributed by the shareholders. Capital gearing ratio is mainly used to analyze the capital structure of a pany. The term capital structure refers to the relationship between the various longterm form of financing such as debentures, preference and equity share capital including reserves and surpluses. Leverage of capital structure ratios are calculated to test the longterm financial position of a firm. Capital gearing ratio is important to the pany and the prospective investors. It must be carefully planned as it affects the pany39。 S e c u r i t i e s 1 0 0 . 0 1 1 0 . 0 1 0 . 0R e c e i v a b l e s 4 3 3 . 1 4 4 0 . 0 6 . 9I n v e n t o r y 3 3 9 . 9 3 5 0 . 0 1 0 . 1T o t a l 8 7 3 . 0 9 0 0 . 0 2 7 . 0F i x e d A s s e t sP , P , E 9 2 9 . 8 1 0 0 . 0 8 2 9 . 8a c c u m D e p r 3 9 6 . 7 4 5 0 . 0 5 3 . 3N e t F i x e d A s s e