Here’s a little something to get the AF4 investment bods brains (and calculators) moving this week.
Module 1 is all about using your calculator(!)
If that seems crazy, wipe that smile off your face; I get people regularly turning up for AF4 workshops and they don’t know how to use their calculator. They can’t compound or use the calculator to work out the 12th root.
Module 1 is all about getting started with numbers. Getting started with the algebra and the process of laying out the equations and numbers in order, line-by-line.
So, once you’ve had a look and got started on the 14 week structured study plan (or downloaded the free module and tried the Q&A’s), here’s something to get you thinking for the weekend, with two questions that will test your numerical abilities.
I’ll drop a video into the forum at the weekend covering the points raised this week and to cover these questions.
The good thing is you’ve got 14 weeks to practice module 1 and work out how your calculator works. We’ll constantly be coming back to the numbers, algebra and process, before we move on to bonds in week 2.
Define and explain the meaning of AER (3 marks)
X pays 0.5% net quarterly, for four years.
Y pays 8% net at the end of four years.
Calculate each AER (ALWAYS ALWAYS to two decimal places) and work out which provides the best investment (2)
This is part of the October 2014 AF4 paper and part of a question which could have been a little tricky, if you hadn’t quite grasped what was needed and it was worth a nice 5 marks:
Calculate, showing all your workings, the real value of Rowan’s inheritance net of tax in 10 years time, if she leaves it in her building society instant access account; Rowan has recently received an inheritance of £150,000. She currently receives 0.75% per annum interest from her building society instant access account, paid six monthly/half yearly and inflation is 2.5% per annum.
Here’s a clue to get you started:
The real rate of return can be used to determine the effective return on an investment after adjusting for inflation.
That’s enough for now.
That’s us started on the AF4 study plan.
I’ll be back at the weekend with the answers on video and next week with more on war bonds.
Have a great weekend.