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Hi Ting,
Could you tell us you uni email, cause I can not find it on canvas. Thanks

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Hi, Ting.
Could I ask a question in this week tut. The question 2 said compounded quarterly. And for this question we use formula of annuity due. I wonder the -n-1. Is it -n-1=18? Or what is it? Because it is every 6 months.

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Annuities: a £4bn pension heist, or a great opportunity to buy? | Patrick Collinson

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The pension plans were an awful investment until they stopped being forced on us

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What is an ANNUITY and how does it work?

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Explanation of the Effective Annual Rate of Interest (EAR)

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A side story

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Power of compound interest - Warren Buffett explains

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Who are they, what they do and how they relate to the agency problem. This video explains quite clearly, so share with you guys in case anyone's still confused.

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What are the problems you are still struggling with?

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What are the two things you have learned from today's tutorial?

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What else do you want to chat about?
E.g. What do you expect from the tutorials?
What do you think about my style of teaching? Want more interactions or more content?
How do you feel about the timing and pace of the tutorial?

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The two rejections have reignited long-running tensions over the multimillion-dollar pay packets received by the top managers of Australia's biggest listed companies.

Although there were company-specific factors at play for Telstra and Tabcorp, and investors backed other companies' executive pay packets, some of the most experienced directors in the country acknowledge all is not right with Australia's executive pay system.

Tony Shepherd, former Business Council of Australia president, says CEOs should be "well remunerated and well motivated," but agrees with Mullen that the executives are overpaid.

"CEO salaries and executive salaries, particularly in the larger companies, have got out of whack with the responsibilities and the contribution that they're making," Shepherd says in an interview.

Lindsay Maxsted, chairman of Westpac and Transurban and a director of BHP Billiton, acknowledges there is room for improvement.

Speaking from London this week, he says the issue is not the size of the pay packets, but the design of one specific component - the long-term incentive (LTI). He says we need to have a "mature debate" about whether complex long-term incentive schemes should be focused more on simpler programs to give executives shares if they meet set hurdles.

"Individual companies should be going to their investors and the proxy houses that advise the investors on remuneration saying 'I don't think LTI is working for you the shareholder, I don't think it's working for me the company, and here is my alternative to long-term incentive based on either fair value or face value,'" Maxsted says.

Tabcorp chair Paula Dwyer this week said the company would change its bonus structures, but also shot back after the company's "strike" - a vote of more than 25 per cent against a remuneration report. She said investors and proxy advisers, experts on the complex world of executive remuneration, appeared to be working together to undermine company leadership.

"I sense that there are, in some ways, orchestrated views emerging," Ms Dwyer told the Australian Financial Review.

And even before the debate flared up this week, some of our biggest companies such as National Australia Bank, Commonwealth Bank and Rio Tinto had been working on changes to how top executives get paid.

Maxsted's opposite number at National Australia Bank, former Treasury Secretary Ken Henry, said in late 2016 that "enough is enough," and the gulf between CEO salaries and ordinary worker pay could not get any wider.

At $4.36 million, the pay of the typical ASX100 CEO is about 52 times the average wage of $82,436, according to figures from the Australian Council for Superannuation Investors (ACSI) and the ABS. That compares with multiples of about 300 times in the United States and 180 times in the United Kingdom, Mullen said this week.

How did we get here?

The fact is, debates over executive pay packets, and how they are structured, have been a constant issue for boards since the global financial crisis, which sparked concerns executive pay had reared out of control.

But the roots of today's big pay packets go back much further.

A 2009 report by the Productivity Commission said the rapid growth in executive pay occurred in the 1990s, after incentive pay schemes were imported from the United States. The commission's report said executive pay in the ASX100 grew from 17 times average earnings in 1993, to 42 times by 2009.

I just feel as though the things that came up in the royal commission have deepened that lack of trust in what companies are doing and in the level of oversight about that.
Loiuse Davidson, chief executive of Australian Council of Superannuation Investors.

As well as the move towards bonus-heavy pay packets, another change during this period was mandatory disclosure of executive pay in 1998 - which allowed bosses to see what their peers were getting.

In 2004, non-binding shareholder votes were introduced on executive pay, and in 2011 the "two strike" rule was introduced. This gave shareholder votes more teeth, by dictating that if a company receives two consecutive votes of more than 25 per cent against its remuneration report, another vote on whether to force the board to stand for re-election is triggered.

As the system has evolved, so has its complexity.

As well as fixed salaries, bonuses have been split into a short-term component and a long-term incentive, under which executives could win the right to shares but not pocket them until the consequences of their decisions were known.

More recently, the "metrics' on which executives are judged have broadened from measures of shareholder return or profitability, to include customer satisfaction, or workplace diversity and inclusion.

To help big investors navigate the complex world of executive remuneration, a entire class of consultants known as proxy advisers has been created.

Tensions between investors and boards over CEO pay are nothing new. When Maxsted appointed Brian Hartzer as Westpac boss in 2015, for instance, he declared there was an understanding that banker salaries got "out of kilter" leading up the global financial crisis, and it was a time for a reset.

But what has changed more recently, investors and advisers say, is there is a newfound impetus for greater accountability. And while previous debates have been about the structure of pay, there is now also a growing focus on the overall quantum of the remuneration.

Several forces appear to be inflaming these tensions.

One is the royal commission into banking misconduct, which last month cast a question mark over executive bonus schemes by highlighting the banks' profit-driven incentive targets for staff. When trying to explain the industry's run of scandals, commissioner Kenneth Hayne concluded: "Too often, the answer seems to be greed - the pursuit of short-term profit at the expense of basic standards of honesty."

Louise Davidson, chief executive of ACSI, which advises super funds on governance issues, says that although neither Telstra nor Tabcorp have been caught up in the commission, it has been a "catalyst" for institutional investors to hold to executives to account.

"I just feel as though the things that came up in the royal commission have deepened that lack of trust in what companies are doing and in the level of oversight about that," Davidson says.

The acting chief executive of governance research firm Regnan, Alison George, also nominates the royal commission's "pervasive" influence in the minds of investors.

"It's brought to a head some of the thinking that was already happening about social licence and the role of incentives within that," she says.

Sir Rod Eddington this week said a key lesson for corporate Australia was that mistakes were ""quietly pushed aside rather than addressed," but he was confident the business community could win back public trust.

"You've got to be welcomed by the communities you serve and you've got to constantly work at that and most businesses I think do work pretty hard at that," Eddington said.

Another recurrent theme of commissioner Hayne's inquiry has been accountability - and the need for consequences when things go wrong. Pay cuts - or at the very least, a loss of bonuses - are perhaps the most obvious consequences for executives.

But in recent years, some investors including industry super funds have raised growing concerns that in too many cases, bonuses are not really "at risk," but part of the package. ACSI's annual CEO pay study reported that 74 or the 80 CEOs eligible for a bonus in the ASX 100 received one.

Global investment giant State Street, which manages about US$29 billion in the Australian sharemarket, has similar concerns.

Benjamin Colton, head of Asia-Pacific asset stewardship, State Street Global Advisors, says Australian executive pay design has changed "significantly," including some firms removing long-term incentive targets. Colton says this can lead management to make "risky" decisions to meet aggressive short-term targets.

"This growing trend of companies shifting their pay towards short-term priorities in reaction to cyclical changes is alarming and we have adopted voting guidelines to address such concerns," Colton says.

Further raising the pressure on boards is the sheer lack of wage growth for others in the community, with pay struggling to keep up with inflation.

It has all added up to a debate that is now about the quantum, as well as the structure of executive pay.

"There's a question about about the amount CEOs are paid in my view, and particularly in an environment when you're seeing broader wage stagnation. There's a sense in the community that things are not working evenly for everyone," says Davidson.

And it is not just on executive pay where companies are under fire from their investors.

The wider growth of shareholder activism - which this week saw Origin Energy, NAB and Westpac review their membership of business lobby groups - may also be playing its part.

The head of responsible investment at the $12 billion Local Government Super fund, Bill Hartnett, says that as a whole, executive pay is too high because boards have become "captive to remuneration consultants".

Yet rather than representing a backlash, he says the recent instances of shareholders voting against companies is a healthy sign, because they show shareholders becoming more engaged in the companies they own.

"A problem that we've seen is for a long time, companies' remuneration reports and their board director appointments have been getting 98 per cent shareholder approval," Harnett says. "I don't really think that reflects the performance of any company or any board."

Boards have the job of responding to these many pressures, and often it comes to a head in the investor vote on executive pay.

Yet directors are split about whether the actual dollar values are too high, as Telstra's Mullen argues. Underlining the tension, even Mullen balanced his criticism of high CEO pay by saying it's a global market for talent.

Gordon Cairns, chairman of Woolworths and Origin Energy and a Macquarie Group director, says: "It's not a question of whether CEOs are overpaid but whether the company performed. Transparency is important in this as it shows why and how they were paid."

Director Lindsay Maxsted says the absolute amount of remuneration is not the "main game," because most investors are happy to pay up for performance.

He points to Transurban, which he also chairs, where 87 per cent of votes cast this month approved $7 million in pay for chief executive Scott Charlton.

"Clearly I get the point that the absolute millions of dollars in a relative sense to the average wage is very high and I can see how people can quite reasonably say, ipso facto, executive remuneration, particularly CEO is too high," Maxsted says.

"But the fact of the matter is this is a relative game, so each of us, the companies we're talking about, are large commercial organisations competing for talent."

What might change, if anything?

As investors debate CEO pay, it is also catching the eye of policymakers. Labor has promised it will force companies to publicly report a ratio of CEO-to-employee pay if it wins the next federal election, similar to rules in the United States and the United Kingdom.

When asked if governments had a role to play, Telstra's Mullen acknowledged these moves overseas. He said Australia's CEO-to-wage earner ratio of about 50 was "a lot," even if it was less than multiples of 300 times in the US and 180 times in the UK.

He then added an important qualifier - saying local companies still needed to pay up to attract the right people.

"It's a constant balance, on the one side I'm acutely aware of social expectations and the image that big business gets from paying huge amounts of money, on the other hand we want to attract the best people in the world," Mullen said.

Aside from measures that might improve transparency, exactly how this situation can be resolved is far from clear.

There is general support, including from the BCA, which represents CEOs, for simpler remuneration reports that would be easier for shareholders to understand. Yet that alone seems unlikely to shift the dial on executive pay.

Directors, investors and chief executives all say the issue is one that needs to be nutted out between shareholders and boards of individual companies, rather than major policy intervention from government.

Tony Shepherd stresses that boards have "absolutely no option" but to follow the guidance of shareholders, including through the "strike" system, which he says has been a success. He is adamant it is no place for government to get deeply involved.

"I think governments setting pay rates and what have you, well that's just a form of communism in my view, so that's not the answer. I think let the market work, let the shareholders express their views, make sure that boards honour the views of shareholders," Shepherd says.

Australian Institute for Company Directors managing director Angus Armour argues companies need to design pay to suit their specific circumstances.

"Boards and other stakeholder groups, including proxy advisers and investors, need to work together and the result needs to be something that the broader community can understand," he says.

ACSI's Davidson says there's a risk of "unintended consequences" if governments get involved in setting pay. She says the group supports simpler pay structures "in theory."

Maxsted says the debate should be about long-term incentives, which he says are most problematic for boards. He says this would be a fairly "narrow" debate that would not necessarily change how much CEOs end up getting.

"I think there needs to be a mature debate, which is happening over here in the UK more so than it is in Australia, around whether the long-term incentive piece becomes more performance share rights, so that provided certain hurdles are met, and the boards retaining discretion, then shares do accumulate for executives over time," he says.

State Street's Colton says the "three strike" policy has made directors accountable on remuneration issues. But outside the board spill mechanism, he says investors are limited in their ability to hold boards to account, because directors only face election every three years or so. In response, it is arguing for annual elections.

Whatever happens, the boards of companies on the receiving end of "strikes" have every incentive to deal with their investors concerns.

Failure to do so will leave them facing another backlash - bringing them a step closer to a board spill - in a year's time.
with Cole Latimer, Jennifer Duke and Colin Kruger

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'Out of whack': Investors fight back over CEO pay cheques

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The two rejections have reignited long-running tensions over the multimillion-dollar pay packets received by the top managers of Australia's biggest listed companies. Although there were company-specific factors at play for Telstra and Tabcorp, and investors backed other companies' executive pay packets, some of the most experienced directors in the country acknowledge all is not right with Australia's executive pay system.

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Gearing Ratio

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What Are Gearing Ratios?

Gearing ratios compare some form of owner's equity or capital to debt or funds borrowed by the company. They are financial ratios that are critical for assessing a business's financial stability and leverage.

Types of gearing ratios include debt, debt-to-equity, equity, and times interest earned ratios.

A gearing ratio is most meaningful when used as a benchmark against another company in the same industry.

The higher the gearing ratio, the more financial leverage a company has. The lower the gearing ratio, the more a company may turn to equity for financing.

Key Takeaways:

An In-Depth Look at Gearing Ratios

The best-known examples of gearing ratios include:

\begin{aligned}&\text{Debt-to-Equity Ratio}=\frac{\text{Total Debt}}{\text{Total Equity}}\\\\&\text{Times Interest Earned}=\frac{\text{EBIT}}{\text{Total Interest}}\\\\&\text{Equity Ratio}=\frac{\text{Equity}}{\text{Assets}}\\\\&\text{Debt Ratio}=\frac{\text{Total Debt}}{\text{Total Assets}}\end{aligned}

A higher gearing ratio means a company has more financial leverage. Such companies are more vulnerable to economic downturns because they have more debt relative to equity. Companies with high gearing ratios have more debt to manage. Companies with lower gearing ratios rely more on equity for financing.

Both internal and external parties find gearing ratios useful. Financial institutions use gearing ratios to decide whether to issue loans. Loan agreements may require companies to meet specific gearing ratio guidelines. Managers use gearing ratios to assess future cash flows and leverage.

How to Interpret Gearing Ratios Effectively

A high gearing ratio usually means high leverage, but it doesn't always signal poor financial health. A company with a high gearing ratio has a riskier financing structure than a company with a lower gearing ratio. Regulated entities typically have higher gearing ratios because they can operate with higher levels of debt.

Companies in monopolistic situations often operate with higher gearing ratios because their strategic marketing position puts them at a lower risk of default. Industries that use expensive fixed assets typically have higher gearing ratios because these fixed assets are often financed with debt.

Important

Practical Examples: Applying Gearing Ratios

Assume that a company has a debt ratio of 0.6. This figure alone provides some information as to the company's financial structure, but it's more meaningful to benchmark it against another company in the same industry.

The company's debt ratio might have been 0.3 last year. The industry average is 0.8, and the company's main competitor has a debt ratio of 0.9. More information is derived by comparing gearing ratios to each other. A company with a 0.3 ratio is performing comparatively well in its industry when the industry average ratio result is 0.8 and the competition's gearing ratio result is 0.9.

What Is Gearing?

What Is the Times Interest Earned Ratio?

What Is Shareholders' Equity?

What Is Financial Leverage?

The Bottom Line

Gearing ratios are financial metrics that compare a company's equity to its debt in several ways. They assess a company's leverage and financial stability.

By comparing a company's gearing ratio with that of other companies in the same industry, it provides more information and a greater understanding of the business's financial health.

Gearing ratios are useful for both internal management and outsiders like financial institutions. The reasons include analyzing cash flows, assessing leverage, and deciding whether to issue loans.

Four types of gearing ratios are the debt (total debt divided by total assets), debt-to-equity (total debt divided by total equity), equity (equity divided by assets), and times interest earned (earnings before interest and taxes divided by total interest) ratios. Each plays a role in assessing a company's financial condition.

A high gearing ratio can indicate increased risk but doesn't necessarily indicate poor financial health. Monopolistic firms or regulated industries are examples where higher ratios might be acceptable.

To make informed financial decisions, it's important to view gearing ratios in the context of economic conditions and industry standards.

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Understanding Gearing Ratios: Definitions, Types, and Calculations

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Learn about gearing ratios, their types, and how to calculate them to assess a firm’s financial leverage between equity and debt funding.

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Real asset vs Financial asset