Investment Chalennge SIMULATION GAME

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Why Do Individuals Invest ? By saving money (instead of spending it), individuals forego consumption today in return for a larger consumption tomorrow. By saving money (instead of spending it), individuals forego consumption today in return for a larger consumption tomorrow.

How Do We Measure The Rate Of Return On An Investment ? real rate of interest real rate of interest inflation premium inflation premium risk premium risk premium

Defining an Investment Any investment involves a current commitment of funds for some period of time in order to derive future payments that will compensate for: Any investment involves a current commitment of funds for some period of time in order to derive future payments that will compensate for: the time the funds are committed (the real rate of return) the time the funds are committed (the real rate of return) the expected rate of inflation (inflation premium) the expected rate of inflation (inflation premium) uncertainty of future flow of funds (risk premium) uncertainty of future flow of funds (risk premium)

Two-step process: Two-step process: Security analysis Security analysis Necessary to understand security characteristics and applied to these securities to estimate their price or value Necessary to understand security characteristics and applied to these securities to estimate their price or value Portfolio management Portfolio management Selected securities viewed as a single unit Selected securities viewed as a single unit How and when should it be revised? How and when should it be revised? How should portfolio performance be measured? How should portfolio performance be measured? The Investment Decision Process

Uncertainty in ex post returns in decision process Uncertainty in ex post returns in decision process Future unknown and must be estimated Future unknown and must be estimated Foreign financial assets – opportunity to enhance return and/or reduce risk Foreign financial assets – opportunity to enhance return and/or reduce risk Investors must now cope with a changed investing environment Investors must now cope with a changed investing environment Internet changes investments environment Internet changes investments environment Institutional investors are important Institutional investors are important How efficient are financial markets in processing new information? How efficient are financial markets in processing new information? Factors Affecting the Process

Main issues: The accountability of the Board of Directors and Management The accountability of the Board of Directors and Management A re-examination of accounting and auditing practices A re-examination of accounting and auditing practices Management compensation arrangements such as executive stock option plans Management compensation arrangements such as executive stock option plans Disclosure requirements Disclosure requirements The effectiveness of existing regulatory bodies The effectiveness of existing regulatory bodies Corporate Governance

Individuals who are interested in the investment area should consider seeking a CFA designation Individuals who are interested in the investment area should consider seeking a CFA designation Level I emphasizes tools and inputs Level I emphasizes tools and inputs Level II emphasizes asset valuation Level II emphasizes asset valuation Level III emphasizes portfolio management Level III emphasizes portfolio management For more information: For more information: Appendix 1-A: The Chartered Financial Analyst ® (CFA ® ) Program

Canadian Securities Institute (CSI) Canadian Securities Institute (CSI) The CSI offers the Canadian Securities Course (CSC), which is a mandatory requirement for individuals who wish to become licensed to sell financial securities in Canada and to register to sell mutual funds The CSI offers the Canadian Securities Course (CSC), which is a mandatory requirement for individuals who wish to become licensed to sell financial securities in Canada and to register to sell mutual funds CFA Institute (formerly Association for Investment Management and Research (AIMR)) CFA Institute (formerly Association for Investment Management and Research (AIMR)) The CFA institute administers the Chartered Financial Analyst ® curriculum and examination program The CFA institute administers the Chartered Financial Analyst ® curriculum and examination program Appendix 1-B: Professional Educational Alternatives

Financial planners Financial planners The Financial Planners Standards Council (FPSC) developed a set of minimum standards regarding education, experience, and ethical and moral conduct for financial planners The Financial Planners Standards Council (FPSC) developed a set of minimum standards regarding education, experience, and ethical and moral conduct for financial planners Appendix 1-B: Professional Educational Alternatives