Professional Documents
Culture Documents
Investment 1
Investment 1
MANAGEMENT
Discussion Topics
1. INTRODUCTION
2. TYPES OF INVESTMENTS
3. SOURCES OF INVESTMENT FUNDING
4. THE INVESTMENT MANAGEMENT
PROCESS
5. PORTFOLIO MANAGEMENT
6. REVIEW & DISCUSSION QUESTIONS
Introduction
What is Investment?
• Investment is the commitment of money or capital
to purchase financial instruments or other assets
in order to gain profitable returns in form of
interest, income, or appreciation of the value of
the instrument
• It is a sacrifice in the present in the expectation of
a future gain.
Investment Management
1. Is the professional management of
various securities and assets to meet
specified investment goals.
Investment Earnings
Overview
Types of Investments
Stocks
Buying a share of ownership in
a corporation and become a
Types of shareholder
Investment Bonds
Buy bonds, loan money to
the government or to a
company
Cash
Equivalents •Savings accounts
• Money market funds or
certificates of deposit (CDs)
Mutual Funds
A mix of investments that
may include stocks, bonds
and cash-equivalents.
Real Estate
•Residential real estate
•Commercial real
estate
Sources of Investment Funding
Internal Sources External Sources
How do we
Invest?
Correlation
• Extent to which the return on two assets
How to get most of move together.
it • Two asset moves up and down together
(+ve) correlated
• Two assets moves in opposite directions
(-ve) correlated
Return, Risk, and the Security Market
Line
• Security market line is the line Asset expected
which is used to describe the return E(Ri)
relationship between
systematic risk and expected
return in financial markets.
• Slope of SML = Market Risk
Premium (The reward for
bearing an average amount of
systematic risk) =E(Rm)-Rf
E(Rm)
SML Equation:
E(Ri)=Ri+[E(Rm)-Rf]× ßi Rf
Asset
Beta (ßi)
ßm=1.0
Performance Evaluation and Risk
Management
Methods to deal with problems faced by investor in
risky assets.
Evaluating risk – adjusted investment performance
Assessing and managing the risks involved with
specific investment strategies.
Measures used to evaluate investment performance
Sharpe ratio
Treynor ratio
Jensen’s alpha