Computational Methods for Financial Applications SCC 2301 Frederick H. Willeboordse

Briefing and Introduction Lecture 0

Do you want be a Millionaire? Well, ….. I do! And yes I’m talking about cash (outside of CPF and HDB). A million would be a nice sum to have when I retire. Flying First Class on Singapore Air when visiting the kids abroad … Whoa … what a sweet thought!

Why the theme? The good news is that the methods and techniques necessary for figuring out whether a) this is possible and b) how this can be achieved, are exactly the core of this module. Although it is really quite simple figure out whether this is possible, I’ll leave the final calculation until the end of the course.

There are many ways … There are of course many ways to become a millionaire …. Winning the lottery – good luck! Robbing a bank – BAD IDEA! Setting up a company – this might work ….. Let me hear your ideas! But we’ll stick with stocks … why? … I hope this will become clear later on.

Who am I Frederick H. Willeboordse S16 #02-36 Dept of Physics Specialized in Chaos Also ran a business for 5 years

Approach Business, Financial Modeling and Financial Planning all go hand in hand and we therefore always face a little bit a chicken an egg problem. I’ll try to tackle this by taking a three dimensional approach working from the outside in.

Methodology The course will follow the workshop approach. This means that there will be short quizzes during the lectures, practicals and tutorials with which you can earn points. The quizzes are not so much tests as they are brain-teasers to help your critical evaluation of the presented material.

Course Outline Lectures: 2 hours per week for a total of 24 lecture hours Tutorials: 1 hour every fortnight (5 hours in total) Practical: One 2 hour session every fortnight (5 sessions)

Practicals and Tutorials The Practicals will focus on acquiring Excel skills and the working out of problems. In the tutorials we'll basically have interactive sessions to iron out unclarities from the lectures. The tutorials are 1 hour in length and fall into the same time slots as the practicals. Each practical group will be split into two tutorial groups.

Practicals and Tutorials Tentatively, the 6 practical and tutorial slots are: Tuesday: 10:00-12:00 & 14:00-16:00 Thursday and Friday Morning session: 10:00 – 12:00 “Lunch” session: 12: :00 Afternoon session: 14:00 – 16:00

Practical/Tutorial Registration

Practicals and Tutorials You can see for which groups you friends signed up and the practical allocation once it's completed at this URL:

References All the lecture notes as well as other relevant material can be found on my web site at: The required text book is “The Web”. The web has a lot of excellent information but it also has a lot of garbage. It’s up to you to decide which is which. Why the web? It’s free and it forces you to think critically. A few excellent books are also mentioned on the course home page.

Course Contents Chapter 1: The Basic Financial Statements Chapter 2: Budgets, Running a Company Chapter 3: Evaluating a Company’s Performance Chapter 4: Investing in the Company Chapter 5: Becoming a Millionaire The chapters are organized mainly from the investor’s point of view and could be organized entirely differently. This does not affect the basic content. After all, a balance sheet is a balance sheet!

View Points But it IS important to be aware that the same data (modeled with the same tools) can mean very different things to different people. Management Investor Bank Supplier Customer …

Different Perceptions P&L, Balance Sheet Customer Management Investor “All right, I just wish I could do this online” “No need to adapt everything is going well!” “Let’s take over something.” “These guys will be out of business in a year” The Company

Why would we need all this? If we want to profit from stocks there are basically two things we need to understand: 1.What are the things we need to know to evaluate a company? - Data, and lots of them 2.What are the tools we need to do the actual financial evaluation? - Excel (of course there are other tools but this is good starting point). Fortunately, these are the same things you’ll almost certainly encounter when you work in a company so taking this module is a double edged sword!