Professional Documents
Culture Documents
INTERNAL ASSIGNMENT
QUES 1.) Are Investment and gambling the same? Justify your answer explaining the
concept and characteristics of Investment.
ANSW 1.)
INVESTMENT
Understanding the investment definition is crucial as sometimes, it can be difficult to choose the
right instruments to fulfill your financial goals. Knowing the investment meaning in your
particular financial situation will allow you to make the right choices.
Investment may generate income in two ways. One, if you invest in a saleable asset, you may
earn income by way of profit. Second, if Investment is made in a return generating plan, then you
will earn an income via accumulation of gains. In this sense, ‘what is investment’ can be
understood by saying that investments are all about putting savings into assets or objects that
become worth more than their initial worth or those that will help produce an income with time.
Financially speaking, an investment definition is an asset that is obtained with the intention of
allowing it to appreciate in value over time. Generally, investments fall in any one of the basic
categories, as explained below:-
Stocks
Bonds
Mutual Funds
ULIPs
GAMBLING
Gambling is defined as staking something on a contingency. Also known as betting or wagering,
it means risking money on an event that has an uncertain outcome and heavily involves chance.
Like investors, gamblers must also carefully weigh the amount of capital they want to put "in
play." In some card games, pot odds are a way of assessing your risk capital versus your risk-
reward: the amount of money to call a bet compared to what is already in the pot. If the odds are
favorable, the player is more likely to "call" the bet.
Most professional gamblers are quite proficient at risk management. They research player or
team history, or a horse's bloodlines and track record. Seeking an edge, card players typically
look for cues from the other players at the table; great poker players can remember what their
opponents wagered 20 hands back. They also study the mannerisms and betting patterns of their
opponents with the hope of gaining useful information.
In casino gambling, the bettor is playing against "the house." In sports gambling, and in lotteries
—two of the most common "gambling" activities in which the average person engages—bettors
are in a sense betting against each other because the number of players helps determine the odds.
In horse racing, for example, placing a bet is actually a wager against other bettors: The odds on
each horse are determined by the amount of money bet on that horse, and constantly change up
until the race actually starts.
Generally, the odds are stacked against gamblers: The probability of losing an investment is
usually higher than the probability of winning more than the investment. A gambler's chances of
making a profit can also be reduced if they have to put up an additional amount of money beyond
their bet, referred to as "points," which is kept by the house whether the bettor wins or loses.
Points are comparable to the broker commission or trading fee an investor pays.
CONCEPT AND CHARACTERISTICS OF INVESTMENT
The concept and characteristics of investment has been defined as follows-
CONCEPT
Investment is the dedication of an asset to attain an increase in value over a period of time.
Investment requires a sacrifice of some present asset, such as time, money, or effort. It is
generally derived from the word invest which means to clothe in, cover or surround.
In finance, the purpose of investing is to generate a return from the invested asset. The return
may consist of a gain (profit) or a loss realized from the sale of a property or an investment,
unrealized capital appreciation (or depreciation), or investment income such
as dividends, interest, or rental income, or a combination of capital gain and income. The return
may also include currency gains or losses due to changes in the foreign currency exchange rates.
Investors generally expect higher returns from riskier investments. When a low-risk investment
is made, the return is also generally low. Similarly, high risk comes with a chance of high
returns. Investors, particularly invoices, are often advised to diversify their portfolio.
Diversification has the statistical effect of reducing overall risk.
CHARACTERISTCS
There are various characteristics which are defined as follows-
Risk factor
Due to a lack of harmonization across disciplines, determinant, in its more widely
accepted scientific meaning, is often used as a synonym. The main difference lies in the
realm of practice: medicine (clinical practice) versus public health. As an example from
clinical practice, low ingestion of dietary sources of vitamin C is a known risk factor for
developing scurvy. Specific to public health policy, a determinant is a health risk that is
general, abstract, related to inequalities, and difficult for an individual to control. For
example, poverty is known to be a determinant of an individual's standard of health.
Expectation of return
The expected return is the amount of profit or loss an investor can anticipate receiving on
an investment. An expected return is calculated by multiplying potential outcomes by the
odds of them occurring and then totaling these results. Expected returns cannot be
guaranteed.
Safety
When you choose to make a safe investment, it means your main investment objective is
preserving principal, even if that means the investment provides you with less income or
growth. If there is little interest income, you can actually lose purchasing power over
time.
Liquidity
Liquidity means how quickly you can get your hands on your cash. In simpler terms,
liquidity is to get your money whenever you need it. Liquidity refers to the ease with which
an asset, or security, can be converted into ready cash without affecting its market price.
Cash is the most liquid of assets, while tangible items are less liquid. The two main types of
liquidity include market liquidity and accounting liquidity.
Current, quick, and cash ratios are most commonly used to measure liquidity.
Marketability
Marketability means any Lien or encumbrance of any Person other than the Purchaser,
which impairs the good and marketable title to, or the use and value of, the affected
Receivable. Marketability means that there are always buyers and sellers of the asset
ready to do transactions with you in case you want to sell or buy the asset for cash. Cash
is the most liquid of all assets. Marketability of an asset can vary over time. An example
is houses. In the 1980s, a house could be sold within days of listing. Normally it takes
four to six months to sell a house.
EXPECTED RETURN
For example,
You might say that there is a 50% chance the investment will return 20% and
a 50% chance that an investment will return 10%.
As per the given case,
The stock recommended for purchase is F while the stock recommended to sell is D.
QUES 3.) According to Lord Keynes “Given market prices, investors driven by the
speculative motive, would trade on forecasts of the future market prices of stocks, rather
than stocks’ intrinsic values.” As security analyst:
a. Comment on the given statement (5
Marks)
b. Given this statement, why do we need fundamental analysis? (5
Marks)
Answ 3.) In the give question, “Given market prices, investors driven by the speculative
motive, would trade on forecasts of the future market prices of stocks, rather than stocks’
intrinsic values.”