Course Overview in Agbus 412 Investment Management

COURSE OVERVIEW IN AGBUS 412 INVESTMENT
MANAGEMENT
 Overview
This course deals with the broad
spectrum of concepts, principles,
analytical techniques, policies and
practices regarding institutional
investment. It provides the target
audience with a broad knowledge
on the key topics of investment
analysis and management.
OBJECTIVES
Upon completion of this course students shall be able to:
1. Discuss the theories and methods of investment

management.
2. Analyze and to evaluate relevance of stocks, bonds, options

for the investments.
3. Know and understand the psychological issues in investment

decision making.
STRUCTURE
The course covers the following three modules.

1. Theories and Methods in Investment Management
2. Investment in Stocks, Bonds and Options
3. Investment Decision Making and Portfolio
Management
A. Theories and Methods in Investment B. Investment in Stocks, Bonds and C. Investment Decision Making and
Management Options Portfolio
1. Stock as specific investment 1. Psychology of investment decision

2. Stock analysis for investment making
decision 2. Active versus passive portfolio
1. Investing versus financing
3. Decision making of investment in management
2. Direct versus indirect investment
3. Investment environment and financial
stocks 3. Strategic versus tactical asset
markets 4. Formation of stock portfolios allocation
4. Investment management process 5. Strategies for investing in stocks 4. Monitoring and revision of the
5. Investment income and risk 6. Identification and classification of portfolio
6. Relationship between risk and return bonds 5. Portfolio performance measures
7. Relationship between the returns on 7. Bond analysis: structure and
stock and market portfolio contents
8. Portfolio theory 8. Decision making for investment in
9. Capital Asset Pricing Model bonds
10. Arbitrage Price Theory
9. Strategies for investing in bonds
11. Market Efficiency Theory
10. Essentials of options
11. Options pricing
12. Using options. Profit and loss on
options
13. Portfolio protection with
options. Hedging
INVESTMENT????
MEANING OF INVESTMENT
-is putting money into something with the expectation of profit.
Committing Funds Return

The Answer is SAVINGS!
Saving money typically means it is
available when we need it and it
has a low risk of losing value
DEFINITION OF INVESTMENT
 “Commitment of funds made in the expectation of some

positive rate of return”
 Investment is the employment of funds with the aim of
achieving additional income or growth in value.
 Expectation of return is an essential element of investment.
SIMPLE INTEREST COMPOUND INTEREST
5% of 10,000.00 5%10,000.00
Principal 10,000.00 Year 1=500
Year 1 =500
5% of 10,000.00
Year 2 =500
INVESTMENT
5%10,500.00
Year 2=525


DEFINITIONS
 F.AMLING- “INVESTMENT May be defined as the purchase by an

individual or institutional investor of a financial or real asset that
produces a return proportional to the risk assumed over some future
investment period.”
 FISHER AND JORDAN-” Commitment of funds made in the expectation
of some positive rate of return. If the investment is properly undertaken,
the return will commensurate with the risk the investor assumes.“
TYPES OF INVESTMENT
▪ ECONOMIC INVESTMENT:
▪ COMMITMENT INVESTMENT
▪ FINANCIAL INVESTMENT
TYPES OF INVESTMENT
 ECONOMIC INVESTMENT:
It refers to the net additions to the capital stock of the society which consists of goods and services that
are used in the production of other goods and services.
 COMMITMENT INVESTMENT
It refers to the money commitment to satisfy personal desires, since no rate of return is involved in such
investment nor capital growth is expected.
Ex. A commitment of money to a new car is an investment from an individual point of view.
 FINANCIAL INVESTMENT
It involves the investment of funds in various assets, such as stock,bonds,real estate etc. Investment is
the employment of funds with the aim of achieving additional income or growth in value.
Household
Financial
Intermediaries
INVESTMENT OBJECTIVES
 Basic Investment Objectives

 Secondary Investment Objectives
BASIC OBJECTIVES OF INVESTING
Any Investment decision will be influenced by three objectives:

1. Security
2. Liquidity
3. Yield
1.Security
Treasury Bills,
 Central to any investment objectives, we have
Certificate of Deposits,
to basically ensure the safety of the principal Commercial Paper,
 An investment can afford to lose the return at Bond, Municipal and
any given point of time but he cannot afford to Gov. Bonds and
lose the principal itself. Corporate Bonds
▪ By identifying the importance of security, we

will be able to identify and select the
instrument that meets this criteria.
2. Liquidity
Because we may have to convert our investment back to cash or funds
to meet our unexpected demands and needs should be highly liquid.
Liquid- easily
WHY SHOULD OUR converted into cash
INVESTMENT
BE LIQUID????
3.Yield
 Yield is basically as the net return out of any investment.
 Given the level or kind of security and liquidity of the
investment , the appropriate yield should encourage the
investor to go for the investment.
RELATIONSHIP AMONG SECURITY, LIQUID AND YIELD
 There is a trade-off between risk ( Security) and return (Yield) on the one hand and
liquidity and return (Yield) on the other
Security Yield
Liquidity Yield
SECONDARY INVESTMENT OBJECTIVES
 Tax Minimization
 Marketability
TAX MINIMIZATION
TAX
DODGING
 An investor may pursue certain investment in order to adopt tax
minimization as art of his / her investment strategy
UNDERSTATEMENT
OF INCOME
DECREASE THE
Reducing the amount of your gross income that INCOME
is subject to
taxes.
OVERSTATEMENT
OF EXPENESE
Deduction for Increase Open a Health
Investments in Property Retirement Savings
and Equipment Contributions Account.
MARKETABILITY
 Marketability describes an at tribute of an investment that means it can be sold at any

time
For
example
WHY DO INDIVIDUALS INVEST?
• To achieve a higher level of consumption in the future by

forgoing consumption today
• To improve our welfare in the future
• Investments help us achieve tradeoff between current
consumption and future consumption
• Basic element of all investment decisions: trade-off between
expected return and risk
MODULE 1 – THEORIES AND METHODS IN INVESTMENT
MANAGEMENT
Overview
 In this module, students are guided to appreciate and understand the
investments field as it is currently understood and practiced for sound
investment decisions making.
 This module presents key concepts to provide an appreciation of the
theory and practice of investments, focusing on investment portfolio
formation and management issues.
LESSON 1 – INVESTING VS. FINANCING
Introduction
 Knowing the difference between investing and financing allows us to
understand the unique relationships of investors and companies and
their interactions with the financial market.
 This lesson provides an understanding on how investors raise their initial
wealth and how corporations raise money to finance their program of
operations.
OBJECTIVES
At the end of the lesson students should be able to;

1. Differentiate investments from financing.
2. Understand the interactions of investors and corporations with financial
markets.
3. Differentiate speculations from investments.
3. Differentiate individual from institutional investors.
ABSTRACTION
 The term ‘investing” could be associated with the different activities,

but the common target in these activities is to “employ” the money
(funds) during the time period seeking to enhance the investor’s
wealth. Funds to be invested come from assets already owned,
borrowed money and savings. By foregoing consumption today and
investing their savings, investors expect to enhance their future
consumption possibilities by increasing their wealth.
ABSTRACTION
 Corporate finance typically covers such issues as capital structure, short-

term and long-term financing, project analysis, current asset management.
Capital structure addresses the question of what type of long-term
financing is the best for the company under current and forecasted
market conditions; project analysis is concerned with the determining
whether a project should be undertaken. Current assets and current
liabilities management addresses how to manage the day-by-day cash
flows of the firm.
ABSTRACTION
 One of the most important questions for the company is financing.

Modern firms raise money by issuing stocks and bonds. These securities
are traded in the financial markets and the investors have possibility to
buy or to sell securities issued by the companies. Thus, the investors and
companies, searching for financing, realize their interest in the same place
– in financial markets. Corporate finance area of studies and practice
involves the interaction between firms and financial markets and
Investments area of studies and practice involves the interaction
between investors and financial markets.
ABSTRACTION
 But at the same time both corporate finance and investments are built upon a
common set of financial principles, such as the present value, the future value,
the cost of capital. And very often investment and financing analysis for
decision making use the same tools, but the interpretation of the results from
this analysis for the investor and for the financier would be different.
 For example, when issuing the securities and selling them in the market the
company perform valuation looking for the higher price and for the lower cost
of capital, but the investor using valuation search for attractive securities with
the lower price and the higher possible required rate of return on his/her
investments.
ABSTRACTION
 Together with the investment the term speculation is frequently used.

Speculation can be described as investment too, but it is related with the
short-term investment horizons and usually involves purchasing the salable
securities with the hope that its price will increase rapidly, providing a quick
profit. Speculators try to buy low and to sell high, their primary concern is
with anticipating and profiting from market fluctuations. But as the fluctuations
in the financial markets are and become more and more unpredictable
speculations are treated as the investments of highest risk. In contrast, an
investment is based upon the analysis and its main goal is to promise safety of
principle sum invested and to earn the satisfactory risk.
ABSTRACTION
 There are two types of investors:

 Individual investors are individuals who are investing on their own.
Sometimes individual investors are called retail investors.
 Institutional investors are entities such as investment companies,
commercial banks, insurance companies, pension funds and other
financial institutions.
CLOSURE
 Knowing the nature of investment, the next

lesson shall help you decide as an individual
investor on how you will carry out and decide
which method of investing you will choose.

Course Overview in Agbus 412 Investment Management

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COURSE OVERVIEW IN AGBUS 412 INVESTMENT

Upon completion of this course students shall be able to:

1. Discuss the theories and methods of investment

2. Analyze and to evaluate relevance of stocks, bonds, options

3. Know and understand the psychological issues in investment

The course covers the following three modules.

1. Stock as specific investment 1. Psychology of investment decision

-is putting money into something with the expectation of profit.

Committing Funds Return

 “Commitment of funds made in the expectation of some

 Investment is the employment of funds with the aim of

 “Commitment of funds made in the expectation of some

 F.AMLING- “INVESTMENT May be defined as the purchase by an

 Basic Investment Objectives

Any Investment decision will be influenced by three objectives:

▪ By identifying the importance of security, we

 Marketability describes an at tribute of an investment that means it can be sold at any

• To achieve a higher level of consumption in the future by

At the end of the lesson students should be able to;

 The term ‘investing” could be associated with the different activities,

 Corporate finance typically covers such issues as capital structure, short-

 One of the most important questions for the company is financing.

 Together with the investment the term speculation is frequently used.

 There are two types of investors:

 Knowing the nature of investment, the next

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