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Unformatted text preview: Chapter 2: Investment Alternatives CHAPTER OVERVIEW The purpose of Chapter 2 is to provide an overview of the major types of financial assets available to investors and discussed in later chapters. It also develops the important alternatives of direct and indirect investing, thereby providing the basis for Chapter 3, which covers investment companies. Obviously, these assets cannot be discussed in detail in this chapter; however, it is important for students to be exposed to the major types of financial assets early in the course in order for them to understand the basics of alternative investment opportunities. For example, if an instructor were to refer to an example or concept involving a call option or a convertible security, the student may have no idea what is being discussed. Thus, this chapter seeks to provide basic information about financial assets at the outset so that students are prepared to handle basic discussions of investing during the course. Chapter 2 first discusses the nonmarketable alternatives available to investors, such as savings accounts, because many students have encountered these already. Also, they offer a good contrast to the marketable securities which are the focus of the text. Money market securities are discussed briefly, and in table format. An important reason for this discussion is that these assets typically are owned by individual investors in the form of money market mutual funds. Chapter 2 concentrates on the major capital market assets, bonds and stocks, while providing a very brief coverage of derivative securities. The idea of indirect investing--the ownership of investment company shares--is introduced in Chapter 2. This is because of the important alternative that such ownership provides all investors--they can turn their funds over to a mutual fund or closed-end company and not have to make investment decisions. It is desirable for students to think about this alternative early in their study. Many investors will opt for a combination of direct and indirect investing, and this alternative needs to be explained early in the course. 2-1 CHAPTER OBJECTIVES 1. To provide an overview of the major financial assets available to investors and discussed in subsequent chapters. 2. To explain in some detail the financial assets of importance to most investors, bonds and stocks. 3. To explain the important alternative of indirect investing, involving the ownership of investment company shares. MAJOR CHAPTER HEADINGS [Contents] Organizing Financial Assets [invest directly and indirectly in money market, capital market and other types of securities] ! An International Perspective [why this is important in today's investing environment; typically done through investment companies] Nonmarketable Financial Assets [savings accounts; certificates of deposit (CDs); money market deposit accounts (MMDAs); U. S. government savings bonds--key features summarized in table form] Money Market Securities [discussion of important money market securities in table...
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- Fall '11
- Finance, Money market, Money Market Securities