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Understanding
Investments
Learning Objectives
• Primary Objectives
Safety of principal
Income
Growth of capital
• Secondary Objectives
Liquidity
Tax minimization
Investment Constraints
Risk-free Rate
Risk
“Typical” Chart
RT
RELATION RISQUE-RENDEME
RISK- EXPECTED RETURN RELATIONSHIPS
12
High Options/Futures
10 Art objects
Coins and stamps
8
Real estate (commercial)
Common shares
Expected
6 Return Real estate (residential) Rendement
Preferred shares
4
Corporate bonds
Government bonds
2
Treasury bills
0
Low
0 2 4 6
Risk
8 10 12
High
The Investment Decision Process
• Two-step process:
Security analysis
• Necessary to understand security characteristics
and applied to these securities to estimate their
price or value
Portfolio management
• Selected securities viewed as a single unit
• How and when should it be revised?
• How should portfolio performance be measured?
Factors Affecting the Process