chapter 1 - Bodie Kane Marcus Essentials of Investments...

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Essentials of Investments Bodie • Kane • Marcus Chapter 1 Investments: Background and Issues
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Essentials of Investments Bodie • Kane • Marcus Investments and Financial Assets Investment: Current commitment of resources for the expectation of future benefits Essential nature of investment Reduced current consumption Planned later consumption Real Assets Produce goods and services and Contribute directly to the productive capacity of the economy. Financial Assets Claims on real assets(claims on income generated by real assets); Simply define the allocation of income and wealth among investors.
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Essentials of Investments Bodie • Kane • Marcus Major Classes of Financial Assets Fixed-Income Securities (Debt): Bonds; Money market instruments Pay a specified cash flow over a specified period. Investment performance is relatively less closely tied to the issuer’s financial condition. Equity: Common stock; Preferred stock Represent an ownership share in a corporation Investment performance is directly tied to the success of the firm. Derivative Securities: Options; Futures Provide payoffs that depend on other assets’ value Risk hedging or Speculation
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Essentials of Investments Bodie • Kane • Marcus Financial Markets and The Economy Consumption Timing Financial markets allow individuals to separate current consumption decision from current income constraints Shift purchasing power from high- earning periods to low-earning periods Allocation of Risk Financial markets allow the risk that is inherent to all investments to be borne by the investors most willing to bear that risk. Separation of Ownership and Management Financial assets and the ability to trade those assets in financial markets allow for easy separation Agency Problem.
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Essentials of Investments Bodie • Kane • Marcus Agency Issues Agency Problem: The conflict between owners’ interests and managers’ personal interests; The likelihood that managers may place personal goals ahead of corporate goal. Resolving the Problem
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chapter 1 - Bodie Kane Marcus Essentials of Investments...

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