FIN8330_Chapter1_Slides0

FIN8330_Chapter1_Slides0 - Investment Analysis and...

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Unformatted text preview: Investment Analysis and Portfolio Management by Frank K. Reilly & Keith C. Brown C h a p t e r 1 C h a p t e r 1 The Investment Setting – What Is An Investment – Return and Risk Measures – Determinants of Required Returns – Relationship between Risk and Return 1-2 What Is An Investment? • Defining Investment: A current commitment of $ for a period of time in order to derive future payments that will compensate for: – The time the funds are committed – The expected rate of inflation – Uncertainty of future flow of funds • Reason for Investing: By investing (saving money now instead of spending it), individuals can tradeoff present consumption for a larger future consumption. 1-3 What Is An Investment? • Pure Rate of Interest – It is the exchange rate between future consumption (future dollars) and present consumption (current dollars). Market forces determine this rate. – Example: If you can exchange $100 today for $104 next year, this rate is 4% (104/100-1). • Pure Time Value of Money – The fact that people are willing to pay more for the money borrowed and lenders desire to receive a surplus on their savings (money invested) gives rise to the value of time referred to as the pure time value of money. 1-4 What Is An Investment?...
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FIN8330_Chapter1_Slides0 - Investment Analysis and...

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