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INVESTMENT acquisition of capital assets, (buildings, machinery, stocks, bonds and shares) SHARES part ownership of a company BROKER licensed member of the stock exchange who trade securities BROKERAGE fees charged by a stockbroker for his professional service BROKER’S NOTE serves as proof that shares have been purchased. SHARE CERTIFICATE shows the number of shares which a shareholder owns
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INVESTMENTS: SECURITIES
TYPES OF INVESTMENTS
KEY WORDS• INVESTMENT acquisition of
capital assets, (buildings, machinery, stocks, bonds and shares)
• SHARES part ownership of a company
• BROKER licensed member of the stock exchange who trade securities
• BROKERAGE fees charged by a stockbroker for his professional service• BROKER’S NOTE serves as proof
that shares have been purchased.• SHARE CERTIFICATE shows the
number of shares which a shareholder owns
KEY WORDS DIVIDEND a portion of the company’s profit
given as reward to a shareholder for the investment
VOTING given the right to
participate in important decisions,
like choosing directors.
BLUE CHIP SHARES shares in a company that is performing well in terms of
profitability and stability
PORTFOLIO a collection of
investments belonging to an investor
INTEREST RATE percentage that will
be earned on an investment or paid
on borrowed money
?How can a business invest internally in their business to become more successful?
INTERNAL BUSINESS INVESTMENTS
• Investing in vision and mission by building confidence in it’s g&s• Investing in latest technology (physical capital)
• Investing in expert and productive personnel (human capital)• Investing in comprehensive marketing to maintain market share
EXTERNAL BUSINESS INVESTMENTS
• Range of opportunities for profitable financial returns
• Investing in property or other assets
• Get holding and controlling interest in
other businesses
THE JOHANNESBURG SECURITIES EXCHANGE
(JSE)Formal market where the public companies that have been listed
trade their shares.
Provide to SA’s economy by providing a market for securities
and creating new investment
opportunities
Main function to direct capital into productive
economic activity through shares.
Prices of shares are determined by supply and
demand
FUNCTIONS OF THE JSEProvide
opportunities for financial
institutions to invest their money
Provide a market for share
transactions
Follow strict rules to prevent
fraud
Publishes share prices daily –
public stay informed
Small investors can invest by buying shares in big
companies
WHY INVEST IN SHARES• Buy shares to receive dividends
• Buy shares at lower price and sell at higher prices to make profit
HOW TO INVEST IN SHARESTrading takes
place through a stockbroker.
These stockbrokers advise on stock
investment issues like when and which shares
to buy.
These transactions are done via
computer programmes on the
Internet.
Stockbrokers charge their customers brokerage and
taxes.
Once a share is bought you will
receive a broker’s note and then a
share certificate to say that you own the
shares.
TYPES OF SHARES
ORDINARY SHARES Standard shares with no special
rights or restrictions. High gains (dividends) but high
risk Dividends are not guaranteed –
if profits are small no dividends will be paid
Last to be paid if company closes down
BONUS SHARESShares are held back and issued as dividends at a later stage or they put them towards special
funds.PREFERENCE SHARES Receive a fixed rate of dividend Paid before other shareholders are paid Even if profits are large, still only get dividends at fixed rate Ordinary preference shares only receive dividends if
there are profits to divide Cumulative preference shares dividends accumulate for
the future if they are not paid out in the current year. Non-cumulative preference shares do not accumulate
any dividends for the future Participating preference shares receive regular dividends
and also share in surplus profits Non-participating preference shares do not carry the
right to participate in excess pofits.
ADVANTAGES OF INVESTING IN SHARES• Shows higher returns
than bank deposits and property
• Provide solid returns at retirement age
• Values of shares increase as companies expand
• You get profits from companies in the form of dividends
RISKS OF INVESTING IN SHARES
Share prices can rise or fall within
seconds and investors might not
have time to sell their shares before
they become worthless
Share performance and price are linked
to many forces which are out of the
control of the investor
UNIT TRUSTSThe portfolio is
divided into equal ‘units’ – the
investor receives a certain amount of
units for the money they have invested.
The trust does not give share to investors,
but combines them in a portfolio.
Management company buys blue chip shares at JSE with money from thousands of investors.
ADVANTAGES OF UNIT TRUSTS• Anyone can purchase units• There is professional
investors that ensure
maximum capital and
income growth
• Medium to long-term investments –
provide for future needs
• Direct access to money invested –
give written instruction to sell
your units within 3-5 working days
RISKS OF INVESTING IN UNIT TRUSTS
Same risks as shares, but
companies have better track
records
If blue chip companies do not continue to grow, the unit trust will also be affected and will not give
expected returns.
GOVERNMENT RETAIL BONDS – RSA RETAIL
SAVINGS BONDS• Invest R1000 to R1 million for a period of 2, 3 or 5 years on a fixed
interest.• Interest is paid out every 6 months (March 31 and September 30)
directly into buyer’s bank account.• The only way to lose on this investment is in the case of political or
economical chaos (war)
BENEFITS OF RSA RETAIL SAVINGS BONDS• Safety paperless, everything is done electronically• Guaranteed returns you will get fixed interest for the whole investment period.• No risk cannot be used as security for loans or sold in the market• Convenience easy to invest – electronically or at the post office• Accessibility can make early withdrawals after 12 months, but will pay
penalties if there is less than R1000 left in the Bond• No charges
RETURNS ON INVESTMENT
UNIT 3 – Page 237
RETURN ON INVESTMENTRETURNS Returns on investment is the
earnings on the capital invested.
DIVIDENDS Shareholders receive dividends
from the shares they bought. Directors decide to distribute some
profits to shareholders. Profitability of company will
determine the dividend. Type of share will determine the
certainty of receiving dividends.INTEREST Reward the investor receives for
giving up the use of their money for a certain period of time.
Long-term investments – higher rate of interest.
Must consider the risk on investments
INTEREST RATES AND
CALCULATIONS
UNIT 4 – Page 238
KEY WORDSSIMPLE INTEREST interest calculated
on the original amount only.
COMPOUND INTEREST interest calculated using the original amount
and all of the accumulated payments added into the formula.
PRINCIPAL the original
amount invested
SIMPLE INTEREST• The PRINCIPAL remains the same over the entire period of
investment.• Interest earned is kept separate unless it is reinvested. • Formula:
P x R x nP = principalR = rate of interestn = time in years or months
EXAMPLE OF SIMPLE INTERESTArthie invested an amount of R3 000 at the bank for a period of three years. The interest rate quoted was 4% simple interest. Calculate the interest earned.
Calculation:A= P(1+ixn)A = R3000(1+4x3)The interest is R360The value of the investment is R3000 + R360 = R3 360
COMPOUND INTEREST• The PRINCIPAL grows with the
addition of interest to it.• Interest is calculated on the new
(higher) principal and again added to it.
EXAMPLE OF COMPOUND INTEREST
• Arthie invested an amount of R3 000 at the bank for a period of three years. The interest rate quoted was 4% simple interest. Calculate the interest earned.
• Total amount received back = R3374.60
Principal Year InterestR3000 R3 000 x 4/100 R120R3120 R3120 x 4/100 R124.80R3244.80 R3244.80 x 4/100 R129.80
EXAMPLE 2 OF COMPOUND INTEREST
• Formula:
P x P = principali = rate of interestn = time in years or months
Arthie invested an amount of R3 000 at the bank for a period of three years. The interest rate quoted was 4% simple interest. Calculate
the interest earned.
3000 x = 3000 x = 3000 x = 3000 x (1,124864)= R3374,59
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