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SIE	Series 6	Series 63	Series 26	MLO

CHANGE UNIT

Current Unit: UNIT 10 - ANALYTICAL METHODS

Unit 8 - Basic Economic Concepts	Unit 9 - Financial Reporting	Unit 10 - Analytical Methods
Unit 11 - Types of Investments	Unit 12 - Equities	Unit 13 - Debt Securities
Unit 14 - Investment Companies	Unit 15 - Insurance Products	Unit 16 - Calls, Puts, Derivatives
Unit 17 - Alt Investments & Assets	Unit 18 - Type of Client	Unit 19 - Client Profile
Unit 20 - Portfolio Management Styles, Strategies, Techniques	Unit 21 - Tax Considerations	Unit 22 - Trading Securities
Unit 23 - Performance Measures	Unit 24 - Retirement Plans

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DIFFERENT TYPES OF VALUES/RATES OF RETURN

PRESENT VALUE
- Indicates value today of the future cash flows of an investment discounted at a specified interest rate
- In Other words, it refers to the deposit required today to compute the future value or goal needed
  - The future value, time period and earnings rate are usually known
- To Determine today's value or deposit, you use the known earnings rate or interest as the discount rate to convert the future cost to a present value
- INITIAL DEPOSIT
  - You need to take into account expected costs or future value need, expected number of years until you need it, and expected inflation rate
  - Salary is not important
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- Required Rate of Return - This can determine how much initial deposit you will need
  - Less than anticipated = Require a bigger initial deposit
  - Equal or More than anticipated = Requires a normal deposit amount or even less, to reach goal
  - Example:
    - $100k to invest at 8% expected return, for 18 years = About $25k required initial deposit
    - If it was 4% expected return, you would need twice as much initial deposit to reach the same goal
- Bond = Sum of all the discounted future payments (interest payment + repayment of principal at maturity)
FUTURE VALUE
- Indicates what an amount invested today at a given rate will be worth at some period in the future
- It depends on ASSUMED INTEREST/Rate of Return and Number of years invested/DURATION OF INVESTMENT

NET PRESENT VALUE
- It is the different between an investment's present value and its cost
- Positive NPV:
  - Current market price is below PV
  - Means the security is available for a price below it's present value; It is a good buy
    - Bond: Purchased at 5% rate when the present value is 5.4%, is a Positive NPV
  - Securities: fixed income security
  - Example: A positive NPV of $10 = Investment cost of $100 and the PV of the investments future returns ($110) equals the NPV of $10
- Negative NPV: Price is too high.
  - Example: Cost ($100) is above the PV of $90. NPV is negative $10.
- Zero NPV: It is accurately priced, efficient market
- NPV greater than 0 = internal rate of return is greater than the required rate of return
- NPV equals 0 = internal rate of return equals required rate of return or Current Market Interest rate
  - For a bond: This means there is no difference between the PV and Current Market Price, it's a highly efficient market
  - Selling at a Premium

INTERNAL RATE OF RETURN (IRR)
- Takes the time value of money into consideration
- Best measured with a known price and maturity, and uneven cash flows
- Is the discount rate ( r ) that makes the NPV of an investment equal to zero.
- Determined by trial and error called iteration
REAL RATE OF RETURN
- Considers inflation rate and risk-adjusted return
- Also called sharpe ratio

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