FINAL REVIEW - FINAL REVIEW Chapter1 Investment process 1...

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FINAL REVIEW Chapter1: Investment process: 1. Setting investment objectives 2. Establishing investment policy 3. Selecting a portfolio strategy 4. Selecting the assets 5. Measuring and evaluating performance Why financial assets? Consumption timing: to shift consumption needs across time (Savings to buy a house) Allocation of risk: real asset too risky Separation of ownership & management: real asset too big Chapter 3 Common Stock Characteristics Voting rights Shareholder can vote for company issues, e.g., executive compensation, board of directors, auditing firm, etc. Residual Claims Last in line of all claimants on the company, e.g., owns whatever is left after workers, suppliers, bondholders are paid off. Limited Liability Lose no more than original investment, e.g., you pay $90 for a share of IBM, you’ll lose no more than that Why do we need indexs (indices) ? Tracking market returns Benchmarking fund manager performance Bases for derivatives, e.g., index options Why Mutual Fund?
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