*Aahfiza walking while holding notes, struggling to memorise it*

Aahfiza : *sigh* look at this question, I kept getting this question a lot. I’ve been reading my notes so
many times but still did not get it what Is actuarial modelling really means ☹

Li : *sudden muncul kat belakang*

: you wish someone could help you ? *whisper to ahfiza*

aahfiza : *nodding*
: pusing kiri tak da org pusing kanan (li with the cute face offering help)
: Li !!!!

Li : milo ais deal ?

so actuarial modelling can be defined as a set of variable mathematical relationship
to predict future behaviour for decision making

Aafiza : oooo but I stil wonder whyyy a model is being use?

Li : *li hilang*

aahfiza : * cari li tk jumpa duduk*

li muncul dari bawah meja : the model can show ….(aahfiza terkeojottt and say : LI!!!!) what product
that we want to produce, to represent idea and explain responsiveness of process due to changes .

aahfiza : ooo now I know the meaning but am I right that model is divided into two category which is
deterministic and stochastic?

anis : AAHFIZAAAA! * TERKEJUT 2.0)

AAHFIZA : GUYS ! YOU GUYS BOTH ARE GIVING ME A HEART ATTACK

ANIS : hehe oh yes you are right by the way. So Stochastic model is the mathematical models that
give random outcomes such as rolling a dice and tossing a coin while deterministic model , is the
model that give fixed out comes like rate of salary.

aahfiza : ooo now I can relate on how a model is being use base on what I wrote on my notes !

both anis and li : HOW ?

aahfiza : there are …………..list steps to be follow nak buat model

li : wuuuu now from the step u given I can now tell u the benefit of the model ( list few benefit )

anis : DON’T FORGETT that model also have some limitation such as (list few)
aahfiza : now I can master this subject oh but when to use the stochastic and deterministic model ?

anis and ahfiza both wodering : ehh when la ?

li : when there is assumption concerning frequency, timing and severity of an event not to forget
TIME VALUE OF MONEY!!!

both anis and aafiza : oooooooo

anis : do u guys remember on DCF being mention in class under stochastic model ?

li and ahfiza : oooo.oooo oh nooooooooooooo

anis : I think my mom can help us to explain on DCF!

Anis :*loud speaker* hello mom, can you help me ? me and my classmate need some explanation on
DCF. Can u explain to us?

mom :*struggling in car * sure sure , DCF is a method of valuing a project, company, or asset using
the concepts of the time value of money. All future cash flows are estimated and discounted by
using cost of capital to give their present values. DCF is widely used in investment finance, real
estate development and corporate financial management

anis : oooooooo okay mommm bye * hang up *

mom : kids nowadays eyy

li and ahfiza : anisss noooo

anis : why ???

aahiza : we need to know how to use themmmmmm!!!

anis : im done

anis : calling mom

mom : pick up

anisn: hehe hello mommm ermm I forgot to ask you how to use DCF ? hehe

mom : YOUUU AH ! alright so you better grab a paper and wrote it down ! there is 6 steps in
discounted cash flow formula.

1. find all necessary financial information in order to fill into our formula as we go along for
instance, Business Tax Rate , Total Business Debt, Risk-Free Rate and few more.

2.calculate the discount rate where this is the crucial part. I f t h i s p o i n t i s n o t d o n e

correctly it will throw off the future calculations and lead to an incorrect
intrinsic value, which will lead to a possible purchase of an overvalued
company. Leading to losses in your investments. The key to this calculation
is not assuming the same discount rate for every stock. Therefore we need
t h i s f i v e t h i n g s : Interest Rate, Tax Rate, risk-free rate, stock beta and market risk premium.

3 . calculate the discount cash flow. Since w e h a v e t h e d i s c o u n t r a t e w e a r e g o i n g t o

use it to do a discounted cash flow analysis where it involves three steps:
Project the Future Free Cash Flow (FFCF) of our company, Calculate the Discount Factor (DF), and
Calculate the Discounted Free Cash Flow (DFCF) of our company.

4. Calculate the net present value

5. Calculate the perpetuity value. B e c a u s e o u r c o m p a n y i s g o i n g t o g r o w i n t o t h e

future we need to discount those cash flows for the future.

6. Calculate the intrinsic value. This is where we put all of our numbers
together and arrive at the intrinsic value of Gamestop.

That wasn’t that hard, was it? It just requires a little patience honey.

mom: okay mom gotta go see you later at home !

ALL THREE : ooooo thank you auntyyyy ! thank you mommm

mom : sighhh welcome