c12s2: investment strategies and financial assets main idea: to invest wisely, investors must...
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C12S2: Investment Strategies and Financial Assets Basic Investment Considerations: The Risk-Return Relationship The higher the risk, the higher the potential return (money) on your investmentTRANSCRIPT
C12S2: Investment Strategies and Financial Assets
Main Idea: To invest wisely, investors must identify
their goals and analyze the risk and return involved.
C12S2: Investment Strategies and Financial Assets
Key Terms: Risk Maturity Par value Tax exempt Current yield Money market Primary market Secondary market
C12S2: Investment Strategies and Financial Assets
Basic Investment Considerations: The Risk-Return Relationship
The higher the risk, the higher the potential return (money) on your investment
C12S2: Investment Strategies and Financial Assets
Basic Investment Considerations: Investment Objectives
Why you are saving affects how you save Where the money comes from will also change
the behavior of saving Consider your circumstances before investing
C12S2: Investment Strategies and Financial Assets
Basic Investment Considerations: Simplicity
You don’t have to know everything to invest Stick to what you know
Consistency If you keep investing, you will have better luck
C12S2: Investment Strategies and Financial Assets
Basic Investment Considerations: 401(k) Plans
Works as a retirement plan Employees authorize payroll
deductions which go into mutual funds
C12S2: Investment Strategies and Financial Assets
Bonds as Financial Assets Used to borrow funds for long periods Bond Components:
Coupon Maturity Par value
Bond Prices Must consider the life of the business before
buying a bond
C12S2: Investment Strategies and Financial Assets
Bonds Ratings Credit system rates companies for bonds
and how likely it is that they will pay off Classifications: Page 322, fig. 12.5
C12S2: Investment Strategies and Financial Assets
Financial Assets and Their Characteristics Certificates of Deposit
Loans to financial institutions Penalties for early withdrawal Simple, safe investment
Corporate Bonds Prices vary, risks vary Junk bonds have low ratings, high rewards Usually long-term investments
C12S2: Investment Strategies and Financial Assets
Financial Assets and Their Characteristics Municipal Bonds
Called ‘munis’ Issued by state and local governments Tax-exempt way to invest money
Federal Savings Bonds Bought at half their face value Interest is added to the value until it reaches the
date it can be redeemed Very safe investment, but slow and small returns
C12S2: Investment Strategies and Financial Assets
Financial Assets and Their Characteristics Treasury Notes and Bonds
Issued when the gov’t borrows money for over a year
Notes: Maturity 2-10 years Bonds: Maturity 10-30 years Safest investments
Treasury Bills T-Bills pay after a number of weeks
IRAs Employees can set these up to help with retirement
C12S2: Investment Strategies and Financial Assets
Markets for Financial Assets Capital Markets
Money is loaned for more than one year
Money Market Money is loaned for less
than one year
Figure 12.6Financial Assets and Their MarketsFigure 12.6Financial Assets and Their Markets
C12S2: Investment Strategies and Financial Assets
Markets for Financial Assets Primary Markets
Nontransferable investments
Secondary Markets Existing assets can be
resold to new owners
Figure 12.6Financial Assets and Their MarketsFigure 12.6Financial Assets and Their Markets