CC3152_L09_ch12+ - INVESTING IN STOCKS BONDS CC3152...

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CC3152 Principles of Financial Planning ˟˘˖˧˨˥˘ʳˌ INVESTING IN STOCKS & BONDS
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5-2 1. Business 2. Financial 3. Market 4. Purchasing Power 5. Interest Rate 6. Liquidity 7. Event (I) The Risks Of Investing [LG1,2]
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5-3 1. Business Risk degree of uncertainty associated with a firm’s earnings and subsequent ability to pay interest and dividend 2. Financial Risk investment risk associated with the mix of debt and equity financing used by the issuing firm
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5-4 3. Market Risk the price volatility of a security 4. Purchasing Power Risk a significant effect on investment returns resulting from possible changes in price levels 5. Interest Rate Risk the changing of market interest rates that affects fixed income securities
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5-5 6. Liquidity Risk the inability to liquidate an investment conveniently and at a reasonable price 7. Event Risk some major and unexpected event occurred that leads to a sudden and substantial change to the value of an investment
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5-6 Returns from Investing Current Return – income while you hold the security + Future Return or Capital Gain – gain on the sale of the investment = Total Return on the investment
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5-7 The Risk-Return Trade-Off If you want GREATER RETURN , you will most likely have to accept GREATER RISK
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5-8 The Risk-Return Relationship
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