1. Learning Objectives “The BIG picture” Learning Objectives “The BIG picture” P.23+; key terms Review Q#2,6-10, 13,16-21,23 1.Define investment and discuss what it means to study investments. 2.Explain why risk and return are the two critical components of all investing decisions. 3.Outline the two-step investment decision process. 4.Discuss key factors that affect the investment decision process.

2. Why Study Investments? Most individuals make investment decisions sometime  Essential part of a career in the field

3. Investments Defined p. 5 “Investments is the study of the process of committing funds to one or more assets”  Emphasis on holding _______________ and ________________  ________________  Concepts also apply to _________________  _________________ assets should not be ignored 

4. Investment Objectives p. 7+ Why do we invest? Primary Objectives    Secondary Objectives   

5. Primary and Secondary Objectives  SAFETY:  INCOME:  GROWTH:  LIQUIDITY:  TAX:  Time:

6. Risk / Return Tradeoff p. 12 Return: Risk:

7. Risk ER Risk-free Rate Bonds Stocks The Tradeoff Between ER and Risk p. 12

8. “Typical” Chart p. 12

9. Investment Constraints Possible constraints for investors include:

10. 1.Security analysis   Necessary to understand security characteristics and apply characteristics to securities to estimate their price or value 2. Portfolio management     The Two-step Process of Investment Decision Process p. 14+

11. _________ returns dominates decision process  Future unknown and must be estimated ___________  do your homework! ____________  How efficient are financial markets in processing new / immediate information? _________________ _______________________ – opportunity to enhance return and/or reduce risk Factors Affecting the Process

12. DIVERSIFICATION Business Risk Market / Systemic Risk