what is investment(mba b&f)

7/27/2019 What is Investment(MBA B&F)

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Investment


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InvestmentInvestment

Investment is the thing that really

makes our economy go and grow! Investment is any NEW Plant and equipment

Investment is any NEW Additional inventory

Investment is any NEW Residential housing

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Inventory Investment

Includes only net change

Date Level of Inventory

Jan. 1, 2003 $120 million

July 1, 2003 145 million

Dec. 31, 2003 130 million

Copyright 2002 by The McGraw-Hill Companies, Inc !ll rights reser"e# 6-1$


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Inventory Investment

Includes only net changeDate Level of Inventory




Started the year ith $120 million

!nded the year ith 130 million

"he net chan#e i a %&' 10 million

6-16Copyright 2002 by The McGraw-Hill Companies, Inc !ll rights reser"e#


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Inventory Investment (Continued)

Includes only net change

Date Level of Inventory




Started the year ith $130 million

!nded the year ith 120 million

"he net chan#e i a %(' 10 million

Copyright 2002 by The McGraw-Hill Companies, Inc !ll rights reser"e# 6-1%


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6-1&Copyright 2002 by The McGraw-Hill Companies, Inc !ll rights reser"e#

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1960 1965 1970 1975 1980 1985 1990 1995 2000

In"entory In"estment, 1'60-2000 (in

billions o) 1'&% #ollars*

This is the most "olatile sector o) in"estment +ote that

in"estment was actally negati"e #ring three recessions


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Types of investment

Cash investment

Debt securities Stocks

Mutual funds

Derivatives

Commodities

eal estates


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Cash investments

hese include savings bank accounts" certificatesof de#osit$ hese investments #ay a low rate of

interest and are risky o#tions in #eriods of inflation Debt securities:

The standard definition of a security is:

"A legal contract representing the right toreceive future benefits under a stated set ofconditions"

his form of investment #rovides returns in the

form of fi%ed #eriodic #ayments and#ossible ca#ital a##reciation at maturity$ &t is asafer and more 'risk(free' investment tool thane)uities$ *owever" the returns are also generally

lower than other securities


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Stocs:

+uying stocks ,also called e)uities- makesyou a #art owner of the business and entitles

you to a share of the #rofits generated by thecom#any$Stocksaremorevolatileandriskierthanbonds$

!utual funds: his is a collection of stocks . bonds and

involves #aying a #rofessional manager toselect s#ecific securities for you$ he #rimeadvantage of this investment is that you donot have to bother with tracking theinvestment$


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Commodities:

he items that are traded on thecommodities market are agricultural andindustrial commodities$ heseitems need to be standardi/ed and must

be in a basic" raw and un#rocessedstate$ he trading of commodities isassociated with high risk and highreward$ rading in commodity futuresre)uires s#eciali/ed knowledge and in(de#th analysis

$


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Real estate

0his investment involves a long(term commitment offunds and gains that are generated through rental or

lease income as well as ca#ital a##reciation$ hisincludes investments into residential or commercial#ro#erties

Derivatives0

hese are financial contracts the values of which arederived from the value of the underlying assets" suchas e)uities" commodities and bonds" on whichthey are based$ Derivatives can be in the form of

futures" o#tions and swa#s$ Derivatives are used tominimi/e the risk of loss resulting from fluctuations inthe value of the underlying assets ,hedging-$


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The Investment Process

A description of the process is: "# Set investment policy

$b%ectives

Amount

Choice of assets Conduct security analysis

'(amine securities )identify those *hich are mis

priced+,

-se a# Technical analysis . the e(amination of past prices for

trends

b# /undamental analysis . true value based on future

e(pected returns


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The Investment Process

0# Portfolio Construction

Identify assets

Choose e(tent of diversification

1# Portfolio Evaluation

Assess the performance of portfolio

2# Portfolio Revision Repeat previous three steps

what is investment(mba b&f)

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