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MANAGEMENT
INTRODUCTION
OBJECTIVES
Students are able to explain
1. the importance of capital markets
2. How to analyze financial investment
WHAT IS AN INVESTMENT?
When current income exceed current consumption desires,
people tend to save the excess. What they do?
1. Put the money under a mattress, or bury the money in the
backyard until some future times when consumption
desires exceed current income when they retrieve their
savings from the mattress or backyard, they have the
same amount they saved
2. Give up the immediate possession of the savings for a
future larger amount of money that will be available for
future consumption reason for saving: trade off of
present consumption for a higher level of future
consumption what we do with the savings to make
them increase over time is called INVESTMENT
WHAT IS AN INVESTMENT?
An investment is the current commitment of dollars for a
period of time in order to derive future payments that will
compensate the investor for
1. The time the funds are committed
2. The expected rate of inflation
3. The uncertainty of the future payment
Current dollars
Future
consumption
Future dollars
Pure rate of
interest
Pure time
value of money
ALTERNATIVES OF INVESTMENTS
Financial assets
Real assets
1. Real estate
2. Precious metals
3. Precious gems
5. Commodity futures