2023 Tutor Guide Session 2 Investment Securities Final

THREE SECTIONS [A ; B and C]
STRUCTURE SECTION A:
OF PAPER2 A COMBINATION OF:
SECTION A BUSINESS VENTURES
(COMPULSORY) QUESTION 1 BUSINESS ROLES
30 MARKS Multiple choice=10 Marks
Complete the statement=10 Marks
Column A and Column B=10 Marks
SECTION B
QUESTION 2 BUSINESS VENTURES [40 MARKS]
SECTION B QUESTION 3 BUSINESS ROLES [ 40 MARKS

(CHOOSE 2 QUESTIONS )
MISCELLANEOUS TOPICS
80 MARKS
BUSINESS VENTURES (20 MARKS) & BUSINESS
QUESTION 4
ROLES (20 MARKS) =
[40 MARKS]
SECTION C:
SECTION C QUESTION 5 BUSINESS VENTURES [40 MARKS]
(CHOOSE 1 QUESTION)
40 MARKS QUESTION 6 BUSINESS ROLES [ 40 MARKS]
MAIN TOPIC: BUSINESS VENTURES
SUB-TOPIC: INVESTMENT:SECURITIES
WHERE DOES IT FIT IN IN THE EXAM PAPER 2
QUESTION 1,2;4&5
SUB-TOPIC: INVESTMENT:SECURITIES So, what’s it About …
… SECURITIES IN A NUTSHELL !
LET’S DO SOME SECTION A EXAM PREP
LET’S DO SOME SECTION A EXAM PREP
1.2 PROPOSED ANSWERS
1.2.1 Non-cumulative preference shares
1.2.2 Unit trust
1.2.3 Retirement annuities
1.2.4 Debentures
1.2.5 Compound
SECTION B: QUESTION 2 (INVESTMENT: SECURITIES)
REMEMBER:
• Function of the JSE: “Raises primary capital by encouraging new
investment possibilities”, is regarded as ONE fact for two marks.
Bullets 9 & 11 of the Core Notes.
• Write the Functions of the JSE in full sentences to obtain two
marks for each fact.
2.1 Discuss the functions of the Johannesburg Securities/Stock Exchange (JSE). (8)
• Serves as a barometer / indicator ✓ of economic conditions in South Africa. ✓
• Keeps investors informed on share prices ✓ by publishing the share prices daily. ✓
• Acts as a link ✓ between investors and public companies. ✓
• Shares are valued and assessed ✓ by experts. ✓
REMEMBER:
o DO NOT confuse the TYPES of investment
opportunities with the FORMS of investments.
o Not everyone may have an opportunity to invest,
but they may have access to some form of
investment.
2.2 Identify the types of business investment opportunities that were used by
CT Plumbers in EACH statement below:
2.2.1 CT Plumbers invested R50 000 for six months at 12% interest with a financial institution.
Fixed deposit ✓✓ (2)
2.2.2 CT Plumbers received dividends for their portion of ownership in Blue Range Ltd.
Shares ✓✓ (2)
REMEMBER:
o Investment decision factors must be linked to the decisions
to invest. Research examples of Types of investment
opportunities and Forms investments that are relevant to
each investment decision.
o DO NOT confuse the meaning of Liquidity with Liquidation (a
Business Strategy) which is covered in Paper 1.
o DO NOT confuse the meaning of Return on investment with
Period of investment..
2.3 Discuss the following factors that should be considered when making investment
decisions:
2.3.1 LIQUIDITY:
An amount could be invested in a type of investment ✓ that can easily be converted to

cash. ✓
It is used to describe the ease and speed ✓ with which investors can convert an
investment into cash. ✓ (4)
decisions:
2.3.2 RETURN ON INVESTMENT:
Refers to income from the investment ✓ namely interest / dividends / increased capital
growth on the original amount invested. ✓
High risk investments ✓ yield higher returns.✓ (4)
SECTION B: QUESTION 2 (INVESTMENTS: SECURITIES)
decisions:
2.3.3 PERIOD OF INVESTMENT:
This refers to the duration of the investment ✓ which may influence the return on
investment. ✓
The longer the investment period ✓ the higher the returns.✓ (4)
REMEMBER:
o DO NOT confuse Fixed Deposit with either the RSA Retail Savings
Bonds or Unit Trusts as a form of investment.
o When distinguishing between RSA Retail Savings Bonds and Unit
Trusts, focus on the minimum amounts required to invest.
o ORIGINALITY: National Treasury has launched RSA Retail Savings
Bonds Top-Up, allowing individuals to invest as little as R500. It will
cost R500 to open the account, but after that, retail investors can
top up their investment with R100 at any time.
2.4 Evaluate the impact of the following forms of investment:
2.4.1 FIXED DEPOSITS:

POSITIVES / ADVANTAGES NEGATIVES / DISADVANATGES
The period of investment ✓ can be over The investor cannot withdraw their
a short / medium / long term. ✓ funds✓ before the maturity date. ✓
Investors can choose ✓ the investment May not outperform the effect of inflation
period that suits them. ✓ ✓ over long term. ✓
2.4.2 RSA RETAIL SAVINGS BONDS:

Investors need to have valid SA
Guaranteed returns ✓ as interest rate is
identification ✓ which may discourage
fixed for the whole investment period. ✓
foreigners to invest. ✓
A minimum of R1 000 must be invested ✓
Interest can be received ✓
which may be difficult for some small
twice a year. ✓
investors to accumulate. ✓
National Treasury has launched RSA Retail Savings Bonds Top-Up, allowing
individuals to invest as little as R500. It will cost R500 to open the account, but after
that, retail investors can top up their investment with R100 at any time.
2.4.3 UNIT TRUSTS:

Managed by a fund manager ✓ who Not good for people who want to invest
buys shares on the JSE. ✓ ✓ for a short period. ✓
Easy to cash in ✓ when an investor Not good for people who want to avoid
needs money. ✓ ✓ risks at all costs. ✓
REMEMBER:
o The best method to study the different types of Shares & types of Preference Shares is to use a table.
o When identifying different types of Preference shares from statements, do not write ‘ordinary shares’
instead of ‘ordinary preference shares’
2.5 REDDY LIMITED (RL)

Reddy Limited offers different types of preference shares to shareholders.
Some shareholders bought shares that will not allow them to receive past dividends.
Others chose shares that allowed them to share in the surplus profit of the business.
Identify TWO types of preference shares offered by RL. Motivate your answer
by quoting from the scenario above.
TYPE OF PREFERENCE SHARE MOTIVATION
Some shareholders bought shares that
Non-cumulative preference shares ✓ will not allow them to receive past
dividends. ✓
Others chose shares that allowed them
Participating preference shares ✓ to share in the surplus profit of the
business. ✓
Remember:
o Compounded interest will always yield higher returns as interest is accrued, than simple
interest.
2.6 Distinguish between simple interest and compound interest. (8)
SIMPLE INTEREST COMPOUND INTEREST

Interest earned on original amount
Interest earned on the original amount ✓
invested ✓ as well as interest earned in
and not on the interest accrued. ✓
previous period(s). ✓
Yields less return ✓ on investment.✓ Yields high return ✓ on investment. ✓

Remember:
o Compounded interest will always yield
higher returns as interest is accrued, than
simple interest.
• Prepare for calculation of simple interest
questions in Sections A & B.
• Refrain from using the Mathematical
formula to calculate simple and compound
interest.
• Always make sure that the final answer
excludes the principal amount and that only
the interest is indicated when asked.
• Practice the various ways of calculating the
Simple and Compound Interest on a
Monthly and Annual basis
• The correct terminology must be used to
avoid losing marks, e.g. Interest VS. Profit
2.7 Zinzi inherited R100 000 and wants to invest it in a fixed deposit for three years.
Capsa Bank offered her 8% simple interest per annum and Fedbank offered her
8% compounded interest per annum.
2.7.1 Calculate the amount of interest that Zinzi will receive after three years if she
invests with Capsa Bank.
Interest = P × r × t = R 100 000 × 0.08 × 3 ✓

= R 8 000 × 3 ✓
= R 24 000 ✓✓
invests with Fedbank.
OPTION 1:
Year 1: R 100 000 × 0.08 × 1 = R 8 000.00 ✓
Year 2: R 108 000 × 0.08 × 1 = R 8 640.00 ✓
Year 3: R 116 640 × 0.01 × 1 = R 9 331.20 ✓
Total interest : R 8 000 + R 8 640 + R 9 331.20 = R 25 971.20 ✓ ✓
invests with Fedbank.
OPTION 2:
Interest = P × (1 + i)n – P = R 100 000 × (1+0.08)3 – R 100 000 ✓
= R 100 000 × (1.08)3 – R 100 000 ✓ = R 100 000 × (1.08 × 1.08 × 1.08) – 100 000 ✓
= R 100 000 × (1.259712) – R 100 000 ✓
= R 125 971.20 - R 100 000 ✓
= R 25 971.20 ✓✓
2.7.3 Recommend the best investment option for Zinzi. Motivate your answer.
RECOMMENDATION
Compound interest ✓✓ Submax (2)
MOTIVATION:
– Compound interest yields more interest than simple interest. ✓✓
– Compound interest allows Zinzi to earn interest on interest. ✓✓ Submax (2)
SECTION C: QUESTION 5 (INVESTMENT: SECURITIES)
REMEMBER
o DO NOT repeat words or phrases used in the
preamble.
o DO NOT provide silent responses on the impact
of RSA Retail Savings Bonds as these responses
do not indicate the positives and/or negatives. If
you do so you will only be awarded one mark for
the vague and incomplete statement/s.
o Do not make the mistake to view this
investment option as benefiting the
government instead of encouraging savings
by the public.
SECTION C: QUESTION 5 (INVESTMENT: SECURITIES)
THIS IS HOW YOU CAN BEAT ESSAYS!
1. You must write the word INTRODUCTION.

Then write TWO short and FACTS about any one or
combination of the questions in the 4 bullets.
2. Start with the four bullet points numbered (2-5).

o You can just rewrite these bullet points as your
headings, numbered 2-5.
o Leave at least 4 to 5 lines open per heading/bullet
o Give 3 to 4 facts per bullet.
o You can then use the extra facts/knowledge you
have about a bullet as an Introduction/ and or
Conclusion
6. You must write the word CONCLUSION.

o Then write ONE short FACT about any one or
combination of the questions listed in the "bullets".

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THREE SECTIONS [A ; B and C]

SECTION B QUESTION 3 BUSINESS ROLES [ 40 MARKS

1.2 PROPOSED ANSWERS

1.2.1 Non-cumulative preference shares

1.2.2 Unit trust

1.2.3 Retirement annuities

An amount could be invested in a type of investment ✓ that can easily be converted to

2.3.2 RETURN ON INVESTMENT:

2.3.3 PERIOD OF INVESTMENT:

2.4 Evaluate the impact of the following forms of investment:

2.4.1 FIXED DEPOSITS:

2.4 Evaluate the impact of the following forms of investment:

2.4.2 RSA RETAIL SAVINGS BONDS:

2.4 Evaluate the impact of the following forms of investment:

2.4.3 UNIT TRUSTS:

2.5 REDDY LIMITED (RL)

2.6 Distinguish between simple interest and compound interest. (8)

SIMPLE INTEREST COMPOUND INTEREST

Yields less return ✓ on investment.✓ Yields high return ✓ on investment. ✓

Interest = P × r × t = R 100 000 × 0.08 × 3 ✓

1. You must write the word INTRODUCTION.

2. Start with the four bullet points numbered (2-5).

6. You must write the word CONCLUSION.

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