1. Investments - Background and Issues
CHAPTER 1

2. Investments & Financial Assets
Essential nature of investment
Reduced current consumption
Planned later consumption
Real Assets
Assets used to produce goods and services
Financial Assets
Claims on real assets

3. Balance Sheet – U.S. Households

4. Domestic Net Worth

5. Major Classes of Financial Assets or Securities
Debt
Money market instruments
Bonds
Common stock
Preferred stock
Derivative securities

6. Financial Markets and the Economy
Consumption Timing
Allocation of Risk
Separation of Ownership and Management
Agency Issues

7. Large Option Exercises

8. Crisis in Corporate Governance
Accounting Scandals
Examples – Enron and WorldCom
Analyst Scandals
Example – Citigroup’s Salomon Smith Barney
Initial Public Offerings
Credit Swiss First Boston

9. The Investment Process
Asset allocation
Security selection
Risk-return trade-off
Market efficiency
Active vs. passive management

10. Active vs. Passive Management
Active Management
Finding undervalued securities
Timing the market
Passive Management
No attempt to find undervalued securities
No attempt to time
Holding an efficient portfolio

11. Players in the Financial Markets
Business Firms – net borrowers
Households – net savers
Governments – can be both borrowers and savers
Investment Bankers

12. Key Trends - Globalization
International and Global Markets Continue Developing
Managing foreign exchange
Diversification to improve performance
Instruments and vehicles continue to develop (WEBs)
Information and analysis improves

13. Global Debt Issue

14. Key Trends - Securitization
Securitization & Credit Enhancement
Offers opportunities for investors and originators
Changes in financial institutions and regulation
Improvement in information capabilities
Credit enhancement and its role

15. Asset-backed Securities

16. Key Trends - Financial Engineering
Repackaging Services of Financial Intermediaries
Bundling and unbundling of cash flows
Slicing and dicing of cash flows
Examples: strips, CMOs, dual purpose funds, principal/interest splits

17. Building a Complex Security

18. Unbundling – Mortgage Security