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im-05-4e - CHAPTER FIVE INVESTORS AND THE INVESTMENT...

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CHAPTER FIVE INVESTORS AND THE INVESTMENT PROCESS CHAPTER OVERVIEW This chapter discusses the risk/return tradeoff and risk tolerance for both individual and institutional investors. The objectives and constraints of various types of institutional investors are presented. Once goals and constraints are determined, these parameters should be codified into a statement of investment policy. Whether to pursue an active trading or a buy and hold investment strategy is one dimension of how the investor implements investment policy. Finally, portfolios must be monitored and periodically revised. LEARNING OBJECTIVES After studying this chapter the student should have an understanding of the risk/return tradeoff and that investors have different levels of risk tolerance. The student should have a thorough knowledge of different types of institutional investors and the objectives and constraints facing these investors. As a result, the student should be able to formulate, evaluate, and implement a statement of investment policy consistent with any given set of goals and constraints. Presentation of Material 1. Investment Process An overview of the investment process is presented in T 5-2. The first step in the process involves specifying investment objectives.
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