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Investments Attributes
Organizing Financial Assets
• It is necessary for all investors to understand
the basic nature of different investment
alternatives
• Investors can invest directly in financial assets
i.e. they themselves buy and sell securities
(Direct investing)
• Investors can buy and sell the shares of
investment companies which in turn hold
securities (Indirect investing)
Direct investing
• Non-Marketable Financial assets
– Saving deposits
– Certificate of deposit
– Money market deposits accounts
– US saving bonds
– Provident Fund Schemes
– Life Insurance
Money Market securities
– T-bills
– Negotiable certificates of deposits
– Commercial papers
– Repurchase agreements
– Banker’s acceptance
Direct investing
• Capital market securities
A. Fixed income securities
– Treasury or government bonds
– Corporate bonds
B. Equity securities
– Preferred stock
– Common stocks
Derivative Securitas
– Options
– Futures
Type of Common Stocks
• Blue-Chip Shares: Stock of Large, well-established
and financially sound company that operated for
many years.
• Income Share: A class of shares that has little
room for Capital appreciation but gives the holders a
portion of all income earned by the company.
• Growth Stock: Stocks of Company whose earnings
are expected to be grow at an above average rate
relative to the market.
• Cyclical Stock: An equity security whose prices are
effected by ups and down in the overall company.
Cyclical stock typically relates to the companies that
sell discretionary items that consumers can afford to
buy in the booming economy.
• Speculative Stock: These are low price shares and
the possibility of -albeit remote- of wind fall profits
are two of their more attractive characteristics.
Indirect Investing
• Investment companies
– Unit trusts
– Open end mutual fund
– Close – end mutual fund
Money Market Securities
• Money market securities include short-term,
highly liquid, relatively low risk debt
instruments
• This market is dominated by financial
institutions like banks
• Maturity of money market securities range
from one day to one year
• Investor may directly or indirectly invest in
these instruments
Types of Money marekt securites
• Treasury bills
• This is a short term money market security
sold at discount by government and redeemed
at face value
• Return or yeild on t-bills is calculated as
follows: