1. -
Investment is a science and art of using resources in economic activities to make profit inthe future.
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The overall purpose for investing is to make money or to improve our welfare, which for our purposes can be defined as monetary wealth, both current and future.
2.
Risk of investment is an uncertainty of return.
3.
“Risk drives expected returns” true because the specification of a larger range of possiblereturns from an investment reflects the investor’s uncertainty regarding what the actual amountwill be. Therefore, a large range of expected returns make the investment riskier.
4.
Fixed income refers to any type of investment that yields a regular (or fixed) return.For example, if you lend money to a borrower and the borrower has to pay interest once a month,you have been issued a fixed-income security when a company does this, it is often called a bondor corporate bank debt (although “preferred stock” is also sometimes considered to be fixedincome). Sometime people misspeak when they talk about fixed income. Bonds actually havehigher risk, while notes and bills have less risk because these are issued by government agencies.
5.
Distinguish between a financial asset and a real asset:
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Real assets: are used to produced goods and services such as land, buildings, machines,etc…
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Financial assets: define the allocation of income or wealth among investors. Financialassets contribute to productive capacity of the economy indirectly, because they allow for separation of the ownership and management of the firm and facilitate the transfer of funds toenterprise with attractive investment opportunities. (Financial assets such as stock, bond, etc…)
6. - Institutional investors:
an organization which pool large sums of money and invest thosesums in companies. They include banks,insurance companies, retirement or pension funds,
hedge fundsandmutual funds. Their role in the economy is to act as highly specialized investors
on behalf of others. For instance, an ordinary person will have a pension from his employer. Theemployer gives that person's pension contributions to a fund. The fund will buy shares in acompany, or some other financial product. Funds are useful because they will hold a broad portfolioof investments in many companies. This spreads risk, so if one company fails, it will beonly a small part of the whole fund's investment. Institutional investors will have a lot of influence in the management of corporationsbecause they will be entitled to exercise the votingrights in a company. They can engage in active role incorporate governance. Furthermore, because institutional investors have the freedom to buy and sell shares, they can play a large partin which companies stay solvent, and which go under. Influencing the conduct of listedcompanies, and providing them with capital are all part of the job of investment management.
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- Institutional investors have more money and access to company managements. So they can buy early and sell early. Individual investors usually buy only after the institutions have jackedup the price. Then they are left holding high priced stocks when the institutions move out.
7.
- Discuss the importance of the financial markets to the Cambodia Economy such as in 2009,Cambodia will establish its stock market although it is a limited stock market. With theintroduction of a financial market, it will help this economy to mobilize the Cambodian people’ssavings and channel them into long-term investments in private, social, economic andinfrastructure projects. This new emerging will take Cambodian to the world of investing.- Primary markets can not exist without secondary market because the secondary marketinvolves the trading of securities initially sold in primary market, it provides liquidity to theindividuals who acquired these securities. Primary markets would not function well withoutsecondary markets. Savers would be reluctant to invest in new securities if they had to hold thesesecurities to maturity or incur large search costs in funding a seller when they were ready to sell.In summary, secondary markets are indispensable to the proper functioning of the primarymarkets. The primary markets, in turn, are indispensable to the proper functioning of theeconomy.
8.
The intrinsic value of stock is the actual value of a company or an asset based on anunderlying perception of its true value including all aspects of the business, in terms of bothtangible and intangible factors. This value may or may not be the same as the current marketvalue. Value investors use a variety of analytical techniques in order to estimate the intrinsicvalue of securities in hopes of finding investments where the true value of the investmentexceeds its current market value. For call options, this is the difference between the underlyingstock's price and the strike price. For put options, it is the difference between the strike price andthe underlying stock's price. In the case of both puts and calls, if the respective difference valueis negative, the intrinsic value is given as zero.
9.
- Direct investing is aninvestmentwhich is sufficiently large to affect acompany's
subsequentdecisions. This is sometimes amajority ownership, but sometimes it's just a
significantminority ownership.- Indirect investing is a way of investinginreal estatewithout actually investing in the
property. Indirectinvestmentcan be done in many ways, includingsecurities, funds, or private
equity. Mostinvestorsinterested in indirect investment would do so through acompanyor
advisor who hasexperiencein this type of investing.
10.
The relationship between bond prices and bond yields: The general definition of yield is thereturn an investor will receive by holding a bond to maturity. So if you want to know what your bond investment will earn, you should know how to calculate yield. Required yield, on the other hand, is the yield or return a bond must offer in order for it to be worthwhile for the investor. Therequired yield of a bond is usually the yield offered by other plain vanilla bonds that are currentlyoffered in the market and have similar credit qualityandmaturity.
11.
If risky asset has an expected return of 7 percent while a safe asset has an expected return of 8 percent: it’s mean that investors should choose the safe asset to invest for their business
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without thinking because it’s make an expected return 8 percents higher than risky asset 7 percents.
12. Most investors hold diversified portfolios:
in abstract, this study examines thediversification decisions of more than 60,000 individual investors during a six year period (1991-96) in recent U.S. capital market history. The majority of investors in our sample are under-diversified and the extent of under-diversification is more severe in retirement accounts.Investors' personal characteristics, their stock preferences, and their behavioral biases jointlyinfluence their diversification choices. Younger, lower-income (less wealthy), and relatively lesssophisticated investors and those who follow price trends, prefer local (familiar) stocks, andexhibit over-confidence hold relatively less diversified portfolios. Under-diversified investorsexhibit strong style and industry preferences and they also prefer more volatile and positivelyskewed stocks. Furthermore, we find some evidence to support the asymmetric informationhypothesis for under diversification. In contrast, we find that factors such as small portfolio size,transaction costs, and search costs are unlikely determinants of investors' diversification choices.The unexpectedly high idiosyncratic risk in investors' portfolios results in a welfare loss.
13.
Bond should the investors select:- Corporate bond, bond price=28%, Yield= 8%Tax exempt incomeTaxable income bond =1- Tax rateTax exempt income= 0.28*0.08= 0.02240.0224Taxable income bond = = 0.0243 = 2.43%1- 0.08- Municipal bond, bond price= 28%, Yield= 5.5%Taxable income bond = 0.28*0.055 = 0.0154 = 1.54%
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Investors should choose corporate bond because it’s provide the higher interests.
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Investment Assignment
Investment School Work.there have some points to improve reader knowledges
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