PERSONAL FINANCE FINALS
short-term loans.
LESSON 1
INVESTMENT MARKET AND IT’S PRODUCTS
STOCK MARKET
- Stocks (equities), which represent ownership in
a company
- Companies issue stocks to raise capital, and
investors buy and sell them on stock exchanges.
BOND MARKET
- where various debt instruments are sold by
corporations and governments.
- Bonds, which are debt securities representing
loans made by investors to governments,
municipalities, or corporations.
COMMODITY MARKET
- A commodity market is a financial marketplace
where raw materials or primary agricultural
products are bought and sold.
- Physical goods like gold, silver, oil, agricultural
products.
DERIVATIVES MARKET
- Derivatives markets provide for price discovery
and risk transfer for securities, commodities, and
currencies.
- Options and futures contracts derived from
underlying assets like stocks, bonds, or
commodities.
FOREIGN EXCHANGE (FOREX) MARKET
- Currency pairs, where one currency is exchanged
for another.
- Forex is the largest and most liquid market
globally.
REAL ESTATE MARKET
- It is a sector of the economy where individuals,
businesses, and investors engage in transactions
related to residential, commercial, or industrial
real estate.
- Real estate investments involve buying, selling,
or renting properties for income or capital
appreciation.
MUTUAL FUNDS
- a business that aggregates the capital of
numerous investors and uses that capital to
purchase securities like bonds, equities, and
- Mutual funds provide diversification and
professional management for investors who may
not have the time or expertise to manage their
own portfolios.
EXCHANGE-TRADED FUNDS
- are financial instruments traded on stock
exchanges, functioning much like individual
stocks.
- Investment funds that trade on stock exchanges,
similar to stocks.
- They provide a way for investors to gain
exposure to a broad market or specific asset
class. In essence, using exchanges to trade funds
simplifies investing and makes it accessible to a
wide range of people.
PRIVATE EQUITY AND VENTURE CAPITAL
- Private equity is capital invested in a company or
other entity that is not publicly listed or traded.
Venture capital is funding given to startups or
other young businesses that show potential for
long term growth.
- Private equity and venture capital funds invest
directly in private companies, providing capital
in exchange for equity
CRYPTO CURRENCY
- Digital currency that can be used for investments
or purchases and doesn't need to be verified by
a bank or other financial institution.
LESSON 2
INVESTMENT ENVIRONMENT
INVESTMENT
- An investment is an asset or item acquired with
the goal of generating income or appreciation.
When an individual purchase a good as an
investment, the intent is not to consume the
good but rather to use it in the future to create
wealth.
INVESTMENT ENVIRONMENT
- The investment environment refers to the
economic, political, and social conditions that
affect the investment market and the
performance of financial instruments. It is
referred to as critical to making informed
 investment decisions and managing investment Asset Allocation
risks.
Diversify your investments across different asset classes
The key factors that affect the investment environment (stocks, Gold, real estate, etc.) based on your goals and
include risk tolerance.
• Economic conditions Implementation
• Political conditions
Purchase selected investments based on your strategy.
• Social conditions
• Global conditions Monitoring and Rebalancing
INVESTMENT VS. SPECULATIONS VS GAMBLING Regularly review your portfolio, adjust holdings if
needed, and stay informed about market changes to
Investment
maintain alignment with your goals.
An investment is an asset or item acquired with the goal
5 TYPES OF INVESTORS
of generating income or appreciation.
1. Angel Investors- These investors are individuals
• Long-term strategy that earned income that exceed 11M annually.
• Requires research, analysis, and long-term 2. Peer to Peer Lenders- Individuals or group They
outlook. help fund small business.
• No guarantee, but as shown in history, can 3. Personal Investors-Businesses can turn to their
generate positive return in the long run. first investment.
• Lowest risk, lowest potential reward. 4. Banks- A classic source of loans.
Speculations 5. Venture Capitalists- Private equity investors that
provide capital to companies exhibiting high
Speculation refers to the practice of buying an asset with growth potential.
the hope of selling it at a higher price in the near future
TIPS FOR GETTING STARTED IN INVESTING
• Short-term strategy
• Buying and selling assets based on • Do your own research
hunch/chance. • Establish a personal spending plan
• Higher risk, higher return, significant losses. • Understand liquidity restrictions
• Higher risk, higher return. • Research tax implications
• Gauge your risk preference
Gambling • Consult an adviser
the practice of risking money on an uncertain outcome RETURN ON INVESTMENT
in the hopes of winning more money.
Return on investment (ROI) is a performance measure
• Short-term strategy used to evaluate the efficiency or profitability of an
• Rely on luck investment or compare the efficiency of a number of
• A form of entertainment different investments. ROI tries to directly measure the
• Highly speculative amount of return on a particular investment, relative to
• High level of risk the investment’s cost.
• Highest risk, highest return
To calculate ROI, the net profit (or loss) of an investment
INVESTMENTPROCESS is divided by the cost of the investment. The result is
expressed as a percentage or a ratio.
Setting Objectives
Return on Investment formula:
Define your financial goal, Risk Tolerance and time
horizon. ROI= Current value of investment – Cost of investment /
Cost of investment
Research and Analysis
Explore various investment options, perform due
diligence, and assess potential risks and returns.
 MEASURING RISK AND RETURN
RISK - The existence of volatility in the occurrence of an
expected incident is called Risk. The higher the
unpredictability greater is the risk.
HANDLING RISK IN PF
Building an emergency fund, purchasing adequate
insurance coverage, and diversifying investments can
help manage personal financial risks and ensure a secure
financial future.
SWOT ANALYSIS
is a strategic tool that helps businesses evaluate their
Strengths, Weaknesses, Opportunities, and Threats. It
enables a comprehensive understanding of potential
risks and benefits associated with a decision or project
THE ESSENTIAL STEPS OF A RM PROCESS
1. Identify the Risk
2. Analyze the Risk
3. Evaluate or Rank the Risk
4. Treat the Risk
5. Monitor and Review the Risk
CAUSES OF RISK
• Wrong method of Investment
• Wrong timing of Investment
• Wrong quality of Investment
• Natural Calamities
• No planed at all
TYPES OF RISK
• Market Risk
• Interest Risk
• Business Risk
• Financial Risk
• Default credit risk
UNSYSTEMATIC RISK
Unsystematic Risk Unsystematic Risk Refers to that
portion of the risk which is caused due to factors unique
or related to a firm or an industry's This risk is company
specific risk and can be controlled if proper measures are
taken. It is caused by the factors like labors, shortage or
power, recession in particular industry etc.
Business Risk: Can be internal as all as external, Internal
risk is caused due to improper product mix, non-
availability of raw materials, absence of strategic
management. External risk arises due to change in
operating conditions thrust upon the firm which beyond
its controls, international market condition etc.
Financial Risk: The risk associated with the capital
structure of a company. A company with no debt
financing has no financial risk. the extent of financial risk
depends on the leverage of the firm’s capital structure
Credit or Default Risk: The credit risk deals with the
probability of meeting with a default. it is primarily the
probability that a buyer will default.
SYSTEMATIC RISK
Systematic risk is that part of the total risk that is caused
by factors beyond the control of a specific company or
individual. Systematic risk is caused by factors that are
external to the organization.
Market Risk: Variations in prices sparked off due to real
social, political and economic events is referred to as
market risk Market risk arises out of changes in demand
and supply pressures in the market following the
changing flow of news or expectations.
Interest rate risk: Generally, price of securities tends to
move inversely with changes in the rate of interest. The
market activity and investor perceptions are influenced
by changes in the interest rate which turn depend on the
nature of stocks, bonds, loans etc. maturity of the
periods and the credits worthiness of the issuer of the
securities.
RISK RETURN RELATIONSHIP OF DIFFERENT STOCKS
TWO TYPES OF TOOLS MEASURES RISK
STANDARD DEVIATION
The standard deviation is often the by investors to
measure por risk of a stock or a stock portfolio. The basic
idea is that the standard deviation is a measure of
volatility: the from re a stock's returns vary from the
stock's average return, the more volatile the stock.
BETA
describes the relationship between the stock return and
index return. Beta describes the systematic risk
SOURCES OF INVESTMENT RETURNS
1. Risk and Return go together in investments.
2. Everything an investor (be it the company or the
investors in the company) does is tied directly or
indirectly to return and risk.
 3. Return is the motivating force, inspiring the
investor in the form of rewards, for undertaking
the investment.
4. Investments provide two basic types of return:
• Income returns
• owner of an investment has the right to any cash
flows paid by the investment.
• Changes in price or value
• The owner of an investment receives the benefit
of increases in value and bears the risk for any
decreases.
MEASURING RETURNS
Total Returns
• How much money was made on an investment over
some period of time?
• Total Return = Income + Price Change
• Current return
CAPITAL RETURN
It is simply the price appreciation (or depreciation
divided by the beginning price of the asset. For assets like
equity stocks, the capital return predominates.
ANNUALIZED RETURNS
If we have return or income/price change information
over a time period in excess of one year, we usually want
to annualize the rate of return in order to facilitate
comparisons with other investment returns.
• Another useful measure: Return Relative = Income +
Ending Value Purchase Price.
TWO TYPES OF RETURN
1. Realized of Historical Return
Analysts review historical return data when trying to
predict future returns or to estimate how a security
might react to a particular situation, such as a drop-in
consumer spending
2. Expected Return
The expected return is the profit or loss that an investor
anticipates on an investment that has known historical
rates of return (RoR). It is calculated by multiplying
potential outcomes by the chances of them occurring
and then totaling these results