FIN2106 Lecture Notes - Lecture 6: Growth Investing, Dividend Yield, Asset Allocation
FIN2106 – Module 6
- Investing
oInvesting is using money to make more money
oInvestment planning is usually the main focus of a financial plan
oCommon objectives with investing
Future purchase of an asset
Provide for dependent’s future needs
To save for retirement
To build up wealth
- Investment Products
oShort term vehicles
Non marketable instruments
Marketable securities
oFixed income securities
oShares
oProperty and other popular investment vehicles
oDerivative securities
oManaged funds
- Direct and Indirect Investing
oDirect investment occurs when investors make their own decisions where funds are
ultimately placed
oIndirect investment involves investors placing their funds with fund managers
- Shares or Equities
oEach share represents fractional ownership in a company
oAdvantages
Consistent dividend stream plus potential of capital gain
Have historically offered higher returns than other asset classes
find more resources at oneclass.com
find more resources at oneclass.com
Wealth of information available
Relatively liquid investment
Dividend imputation
oTypes of share buyers:
Investors
Hedgers
Speculators
oBulk of trading occurs on stock exchanges, with the ASX having a monopoly in Australia.
oInvestment in Australian companies not yet listed are referred to as private equity
oMarket price is determined by interaction of supply and demand
oShare investing strategies
Buy and hold strategy
Dollar cost averaging
Diversifying
Growth investing
Value investing
oMeasures if share performance
Dividend yield – annual dividends are divided by current market price of share
Book value per share – shareholder equity divided by the number of
outstanding shares
Net profit margin – company net profit after tax divided by total revenues
Return on equity – company net profit after tax divided by shareholder equity
Earnings per share – earnings less preference dividends divided by the number
of outstanding shares
Price/earnings ratio – current market price of share divided by earnings per
share
Beta – Price volatility of the share relative to volatility of the market as a whole
oDividend Valuation Models
Constant dividend model
Constant growth dividend model
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Investing: investing is using money to make more money, investment planning is usually the main focus of a financial plan, common objectives with investing. Marketable securities: fixed income securities, shares, property and other popular investment vehicles, derivative securities, managed funds. Direct and indirect investing: direct investment occurs when investors make their own decisions where funds are ultimately placed, indirect investment involves investors placing their funds with fund managers. Shares or equities: each share represents fractional ownership in a company, advantages. Consistent dividend stream plus potential of capital gain. Have historically offered higher returns than other asset classes. Dividend imputation: types of share buyers: Dividend yield annual dividends are divided by current market price of share. Book value per share shareholder equity divided by the number of outstanding shares. Net profit margin company net profit after tax divided by total revenues. Return on equity company net profit after tax divided by shareholder equity.
