Investments
Terms
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- What is an investment?
- An investment is the current commitment of money or other resources in the expectation of reaping future benefits.
- What are real assets?
- Assets used to produce goods and services.
- What are financial assets?
- Claims on real assets or the income generated by them.
- Fixed income securities.
- Fixed income securities promise either a fixed stream of income or stream of income that is determined according to a specified forula.
- Money market.
- Fixed income securities that are short term, highly marketable, and generally very low risk.
- Fixed income capital market.
- Includes long-term securities such as Treasury bonds, as well as bonds issued by federal agencies, state and local municipalities, and corporations.
- Equity.
- An ownership share in the corporation. The performance of equity securities is tied directly to the performance of the firm.
- Derivative securities.
- Provide payoffs based on the prices of other assets such as bond or stock prices.
- Agency problem.
- Conflicts of interest between managers and stockholders.
- Investment process.
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Objective setting
Security Selection
Asset allocation
Performance Measurement - Passive management.
- Buying and holding a diversified portfolio without attempting to identify mispriced securities. This managment philosophy is based upon the idea that securities are already priced fairly with respect to their risk.
- Active managment.
- Attempting to identify mispriced securities or to forecast broad market trends.
- Financial intermediaries.
- Institutions that connect borrowers and levders by accepting fuds from lenders and loaning funds to borrowers.