1、Unit 5 Text:Investments（投资）1.Key words2.Definition of investment environment and process3.Investment environment4.Investment process5.Questionsinvestment environmentmarketable securitiesinvestment processcall options on common stocksreal investmentfinancial investmentmortgage bonddebenture bondprima
2、ry marketsecondary marketTreasury bondfinancial intermediariesinvestment policysecurity analysistechnical analysisfundamental analysisoverpriced stocksunderpriced stocksportfolio constructionportfolio revisionportfolio performance evaluation,2.1 Definition of investment2.2 Real investment and financ
3、ial investment2.3 Definition of investment environment2.4 Definition of investment processInvestment,in its broadest sense,means the sacrifice of current dollars for future dollars.Two different attributes are generally involved:time and risk.2.2.1 Real investment Real investments generally involve
4、some kind of tangible assets,such as land,machinery,or factories.2.2.2 Financial investment Financial investments involve contracts written on pieces of paper,such as common stocks and bonds.The investment environment encompasses the kinds of marketable securities that exist and where and how they a
5、re bought and sold.The investment process is concerned with how an investor should proceed in making decisions about what marketable securities to invest in,how extensive the investments should be,and when the investments should be made.3.1 Securities3.2 Security markets3.3 Financial intermediaries3
6、.1.1 Definition of security3.1.2 The rate of return of securityIn general,only a piece of paper represents the investors rights to certain prospects or property and the conditions under which he or she may exercise those rights.This piece of paper,serving as evidence of property rights,is called a s
7、ecurity.It may be transferred to another investor,and with it will go all its rights and conditions.Therefore,the term security is used to refer to a legal representation of the right to receive prospective future benefits under stated conditions.The rate of return(or simply the return)of security,i
8、s calculated as follows:Return=(end-of-period wealth beginning-of-period wealth)/beginning-of-period wealth3.2.1 Definition of security markets3.2.2 Ways of distinguishing security marketsSecurity markets exist in order to bring together buyers and sellers of securities,meaning that they are mechani
9、sms created to facilitate the exchange of financial assets.Distinguishing between primary and secondary markets.Here the key distinction is whether or not the securities are being offered for sale by the issuer.Interestingly,the primary market itself can be subdivided into seasoned and unseasoned ne
10、w issues.A seasoned new issue refers to the offering of an additional amount of an already existing security,whereas an unseasoned new issue involves the initial offering of a security to the public.Unseasoned new issues are often referred to as initial public offerings,or IPOs.Distinguishing betwee
11、n security markets considers the life span of financial assets.Money markets typically involve financial assets that have life spans of one year or less,whereas capital markets typically involve financial assets that have life spans of greater than one year.Thus Treasury bills are traded in a money
12、market,and Treasury bonds are traded in a capital market.Financial intermediaries are organizations that issue financial claims against themselves(meaning that they sell financial assets representing claims on themselves in return for cash)and use the proceeds from this issuance to purchase primaril
13、y the financial assets of others.Financial intermediaries provide an indirect method for corporations to acquire funds.Corporations can obtain funds directly from the general public by the use of the primary market.Alternatively,they can obtain funds indirectly from the general public by using finan
14、cial intermediaries.Here the corporation gives a security to the intermediary in return for funds.In turn,the intermediary acquires funds by allowing the general public to maintain such investments as checking and savings accounts with it.4.1 Set investment policy4.2 Perform security analysis4.3 Con
15、struct a portfolio4.4 Revise the portfolio4.5 Evaluate the performance of the portfolioThe initial step,setting investment policy,involves determining the investors objectives and the amount of his or her investable wealth.Because there is a positive relationship between risk and return for sensible
16、 investment strategies,it is not appropriate for an investor to say that his or her objective is to“make a lot of money.”What is appropriate for an investor in this situation is to state that the objective is to attempt to make a lot of money while recognizing that there is some chance that large lo
17、sses may be incurred.Investment objectives should be stated in terms of both risk and return.The second step in the investment process,performing security analysis,involves examining a number of individual securities(or groups of securities)within the broad categories of financial assets previously
18、identified.One purpose for conducting such examination is to identify those securities that currently appear to be mispriced.There are many approaches to security analysis.The first classification is known as technical analysis;those who utilize this approach to security analysis are known as techni
19、cians or technical analysts.In its simplest form,technical analysis involves the study of stock market prices in an attempt to predict future price movements for the common stock of a particular firm.The second classification is known as fundamental analysis;those who utilize it are known as fundame
20、ntalists or fundamental analysts.Fundamental analysis begins with the assertion that the“true”(or“intrinsic”)value of any financial asset equals the present value of all cash flows that the owner of the asset expects to receive.Accordingly,the fundamental stock analyst attempts to forecast the timin
21、g and size of these cash flows,and then converts them to their equivalent present value by using an appropriate discount rate.The third step in the investment process,portfolio construction,involves identifying those specific assets in which to invest,as well as determining the proportions of the in
22、vestors wealth to put into each one.Here the issues of selectivity,timing,and diversification need to be addressed by the investor.Selectivity,also known as micro-forecasting,refers to security analysis and thus focuses on forecasting price movements of individual securities.Timing,also known as mac
23、ro-forecasting,involves the forecasting of price movements of common stocks in general relative to fixed-income securities,such as corporate bonds.Diversification involves constructing the investors portfolio in such a manner that risk is minimized,subject to certain restrictions.The fourth step in
24、the investment process,portfolio revision,concerns the periodic repetition of the previous three steps.That is,over time the investor may change his or her investment objectives,which,in turn,means that the currently held portfolio may no longer be optimal.Instead,perhaps the investor should form a
25、new portfolio by selling certain securities that are currently held and purchasing certain others that are not currently held.The fifth step in the investment process,portfolio performance evaluation,involves determining periodically how the portfolio performed,in terms of not only the return earned
26、,but also the risk experienced by the investor.Thus appropriate measures of return and risk as well as relevant standards(or“benchmarks”)are needed.(1)Is there any difference between investment and savings?(2)What are the major elements involved in the investment environment?(3)Can you give examples to show what real investments and financialinvestments are?(4)Distinguish between technical and fundamental security analysis.(5)Give an example,outside the financial markets,in which you commonly face a trade-off between risk and return.
