Chapter 1 the Investment Environment

Chapter 1 The Investment Environment 1. 1. truly summations versus monetary Assets (Page 30) ? Real Assets ? Determine the productive capacity and net income of the economy ? Examples Land, buildings, machines, and knowledge utilize to produce goods and services ? Financial Assets ? Claims on real assets 1-2 1. 2. Financial Assets (Page 32) ? trinity types 1. Fixed income or debt communal stock or equity differential gear securities 2. 3. 1-3 Fixed Income ? ? ? ? 1-4 Payments fixed or determined by a edict Money securities industry debt short term, highly marketable, sually low credit peril (T-bills, certificates of deposits etc) Capital market debt long term bonds, can be golosh or risky (Treasury bonds, municipal bonds, corporate bonds, etc) Bond ratings in harm of default risk, from very safe to junk Common Stock and Derivatives ? Common Stock is equity or ownership in a corporation. ? ? Derivatives ? ? 1-5 Payments to stockholders argon not fixed, but depend on the su ccess of the firm abide by derives from prices of other securities such as stocks and bonds usaged to transfer risk (hedge) 1. 3.Financial Markets and the sparing (page 33-36) ? ? ? ? ? 1-6 Information Role Capital flows to companies with best prospects Consumption Timing Use securities to store wealth and transfer consumption to the future Allocation of put on the line Investors can select securities consistent with their tastes for risk Separation of Ownership and heed minimize the famous agency costs and maximize firm honour Corporate Governance and Corporate Ethics How to reduce the agency problems (Page 34-35) ? ? ? ? 1-7 honorarium plans bonus, stock options, etc.The power of the board of directors Outsiders monitor Threat of takeover substitute contest, mergers, etc. 1. 4. The Investment Process (page 36) ? When constructing a portfolio, investors need to decide ? ? 1-8 Asset allocation ? superior among broad asset classes Security selection ? Choice of which securit ies to hold within asset class ? Security analysis to mensurate securities and determine investment attractiveness 1. 4. The Investment Process (page 37) ? 1-9 Portfolio strategies ? Top-down starts from asset allocation Bottom-up starts from individual securities 1. 5. Markets are Competitive (page 37-39) ? Implications from no-free-lunch proposition ? ? Risk-Return tradeoff Efficient Markets (security prices have reflected all information) (Chapter 11-12) ? Passive management ? No onslaught to find undervalued securities ? No ? attempt to time the market ? Holding a highly diversified portfolio Active Management ? ? 1-10 Finding mispriced securities Timing the market 1. 6. The Players (page 39-42) ? ? ? ? Business Firms net borrowersHouseholds net savers Governments can be both borrowers and savers Financial Intermediaries Pool and invest funds ? Investment Companies ? Banks ? Insurance companies ? Credit unions 1-11 comprehensive Bank Activities Investment Banking Underwrit e new stock and bond issues stag newly issued securities to public in the primary market Investors trade previously issued securities among themselves in the secondary markets Commercial Banking Take deposits and make loans 1-12 1. 7. Financial Crisis of 2008 information (page 42-51) 1-13