University Finance Assignment: Principles of Finance Analysis, S2 2019

This finance assignment solution, prepared for ACST603 Principles of Finance, addresses two primary tasks. Task 1 focuses on analyzing an online borrowing power calculator, detailing its functions, assumptions, and limitations. The analysis includes the application of the present value method, the use of the PMT function, and an evaluation of how lenders determine loan sizes. Task 2 involves a share price analysis of the Pfizer Company over a five-year period, calculating holding period returns and standard deviations. The assignment utilizes financial calculators and data from Yahoo Finance to provide a comprehensive understanding of financial principles and practical applications. The document also includes a bibliography of the resources used for the analysis.

Running head: PRINCIPLES OF FINANCE
Principles of Finance
Name of the Student:
Name of the University:
Author’s Note:

1PRINCIPLES OF FINANCE
Table of Contents
Task 1...............................................................................................................................................2
Task 2...............................................................................................................................................5
Bibliography....................................................................................................................................6

2PRINCIPLES OF FINANCE
Task 1
1) The application of the present value method can be better done with the help of certain key
factors like the future value, time period, interest rate, coupon payments and payment time. The
formula that is reflected in the excel sheet is as follows:
=PV(rate, nper, pmt, fv, type).
The excel calculator produces the present value of future cash flows by undertaking
various key factors like future value, time period, interest rate, coupon payments and payment
time. The present value calculated with the help of the calculator help us in further analysis in the
investment decision.
2) The borrowing power calculator is a useful calculator that helps a loan borrower determine the
maximum amount of loan it can borrow and the associated monthly repayment after feeding
certain key inputs like the monthly interest rate, term period of loan, monthly net income and
expenses. After taking on the above key factors the calculator also displays a key graphical
analysis showing the amount of principal remaining along with the amount materialized by the
borrower.
3) The calculator calculates the value of the desired numbers but is based on a certain number of
assumptions. The borrowing power calculator do evaluates the max amount of loan that would
be made available and would be based on the various set of expenses and income entered. The
calculator also takes on various default numbers in the form of expenses and various other
factors so that the maximum amount of loan can be well determined.

3PRINCIPLES OF FINANCE
Interest Rate Buffer: The interest rate buffer that is reflected in the calculator is a based on the
monthly interest rate whereby the loan amount or the monthly payment on the loan would be
determined with the help of entered interest rate. Repayments are always calculated in the
calculator on a monthly basis. The interest rate buffer has the capacity of assuming a higher rate
of interest rate thereby allowing the user to analyse the maximum or sizeable amount of loan that
can be taken.
Max % of Loan Taken: The maximum amount of loan taken by the borrower is well analysed
or presented after taking on the expenses that would be incurred and the sources of income that is
available to the borrower. After taking on other key factors like the time period of loan and the
applicable interest rate that would be applied for the loan.
Length of Month: In terms of the term period the length of months that have been considered in
this time period is taken on an equal basis. The applicable interest rate and the other key factors
have also been taken on a monthly basis whereby the factors propping up in this case are taken
on an equal length.
4) In the scenario the answer did not well matched up with the table answers given:

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In the case of scenario 6 the answers determined from the online calculator is as follows:
5) The PMT function can be well applied in both the above scenarios whereby in both the case
the annual rate that has been well applied is well divided by the monthly compounding rate, the
number of period that has been applied is also multiplied by 12, the loan amount taken at each of
the following scenario was taken as a present value factor and the result derived are as follows:
Scenario 1: PMT (6%/12,25*12,418000,0) : PMT: $2693.18
Scenario 2: PMT (7.5%/12,20*12,113000,0) : PMT : $910.32.

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Task 2
1) The share price analysis for the Pfizer Company has been well done for a sum of five-year
time period whereby relevant changes in the share price of the company from the trend period
30-06-2014 to around 30-06-2019 was taken into consideration. For the purpose of analysis daily
set of returns generated by the Pfizer Company has been taken into analysis.
2) The holding period return for each of the set of data has been well computed with the help of
the daily share price that has been computed for the analysis purpose. The standard deviation for
each of the daily movement has been well determined with the help of the changing holding
period return that was observed in the share price analysis that has been done for the company.
On the other the template was filled accordingly by us by taking all the input variables and
estimates that were important. In the graphical section or analysis portion we have well created
the graph by undertaking the high and low prices of the Pfizer Company in the five year trend
period and accordingly the graph is shown below:

6PRINCIPLES OF FINANCE
Share High and Low Price
Bibliography
Finance.yahoo.com. 2019. Yahoo is now part of Verizon Media. [online] Available at:
https://finance.yahoo.com/quote/PFE/history?
period1=1404066600&period2=1561833000&interval=1d&filter=history&frequency=1d
[Accessed 7 Oct. 2019].
Infochoice.com.au. 2019. Borrowing Power Calculator - Mortgage - How Much Can I Borrow.
[online] Available at: https://www.infochoice.com.au/calculators/borrowing-power-calculator/
[Accessed 7 Oct. 2019].
7/1/2014
9/23/2014
12/16/2014
3/10/2015
6/2/2015
8/25/2015
11/17/2015
2/9/2016
5/3/2016
7/26/2016
10/18/2016
1/10/2017
4/4/2017
6/27/2017
9/19/2017
12/12/2017
3/6/2018
5/29/2018
8/21/2018
11/13/2018
2/5/2019
4/30/2019
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Share High and Low Price
high price low price