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    Sessio 4 & 5

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    Rachamalla Krishnareddy
    This document covers various topics related to investment options and financial instruments. It discusses investment attributes like returns, risk and safety. It describes the characteristic features of different types of financial instruments including public and private debt instruments and ownership securities. The document also covers various investment instruments, risks related to investing including systematic and unsystematic risk, and concepts like return, security, and the difference between finance and investment. It provides information on new investment instruments and financial planning steps.

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    Sessio 4 & 5

    Uploaded by

    Rachamalla Krishnareddy
    13 views16 pages
    This document covers various topics related to investment options and financial instruments. It discusses investment attributes like returns, risk and safety. It describes the characteristic features of different types of financial instruments including public and private debt instruments and ownership securities. The document also covers various investment instruments, risks related to investing including systematic and unsystematic risk, and concepts like return, security, and the difference between finance and investment. It provides information on new investment instruments and financial planning steps.

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    This document covers various topics related to investment options and financial instruments. It discusses investment attributes like returns, risk and safety. It describes the characteristic features of different types of financial instruments including public and private debt instruments and ownership securities. The document also covers various investment instruments, risks related to investing including systematic and unsystematic risk, and concepts like return, security, and the difference between finance and investment. It provides information on new investment instruments and financial planning steps.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    13 views16 pages

    Sessio 4 & 5

    Uploaded by

    Rachamalla Krishnareddy
    This document covers various topics related to investment options and financial instruments. It discusses investment attributes like returns, risk and safety. It describes the characteristic features of different types of financial instruments including public and private debt instruments and ownership securities. The document also covers various investment instruments, risks related to investing including systematic and unsystematic risk, and concepts like return, security, and the difference between finance and investment. It provides information on new investment instruments and financial planning steps.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 16

    Investment Options

    Unit -2

    Topics to be covered

    Investment Attributes Characteristic features of financial instruments Risk and return Security, maturity and optional features Finance vs. Investments

    Investment Attributes
    Returns Capital Appreciation Conservation Aggressive Growth Speculation Form of return Periodic Cash receipts Capital Gain Safety and Security of funds Risk, Liquidity, Tax Considerations, Conveyance, Concealability

    Features of Financial instruments

    Creditorship Securities a) Public Debt Instruments b) Private Debt Instruments c) Special Debt Instruments Ownership Securities

    Investment Instruments

    Trade Bills Bankers Acceptance Treasury Bills Short dated Government Securities Commercial papers Hundis

    New instruments introduced : Zero Coupon bonds Non convertible debentures Preference shares with warrants Fully convertible cumulative preference shares Deep discount bond

    Risk

    Risk: A situation where the possible consequences of the decision that is to be taken are known. Uncertainty : A situation where the probabilities cannot be estimated. Types: a)Systematic b)Unsystematic

    Systematic Risk

    Market Risk Stock variability due to investors attitude and expectations .Investors can eliminate market risk by being conservative. Interest rate risk a)Long term b) cyclical (bull and bear markets ) c) intermediate or within the cycle d) short term

    Purchasing power risk Cost push or demand pull If a cost living index has a base 100 and the next year shows 105 the rate of increase in inflation is 5%.

    Unsystematic Risk
    Business Risk Business Cycle Demographic factors Political policies Monetary policy Environment

    Financial Risk Business risk is concerned with an analysis of income statement between revenues and EBIT Financial risk is stated as being between EBIT and EBT.

    Return

    Determinants of the rate of return: i) The time preference risk free real rate ii)The expected rate of inflation iii) The risk associated with the investment (Problems)

    Security
    Securities are traded in capital market. Shares and debentures are examples of securities. Portfolio is a collection of securities (Problem.)

    Yield to maturity

    Income that the compounded rate of return will receive from a bond purchased at a current market and held to maturity It equates two values: a) Value market price b)Present value of future payments including the principal repayment.

    Finance vs. Investment


    Stick with indexes Create a bond ladder Diversify Watch your money Understand tax consequences Keep it simple

    Financial planning Step 1: Commitment Step 2: Set goals Step 3: Assemble and organize information Step 4: Manage cash flow Step 5 : Self educate Step 6: Create a written plan Step 7: Engage Professionals

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