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Analysis

An investment is committing funds for a period of time in order to receive future returns that compensate for inflation, risk, and the time value of money. Students tend to borrow rather than save because they have no income but want to invest in education to increase future earnings. Saving is still important for students to learn financial responsibility and plan for the future.

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SAMIA AKHTAR
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90 views

Analysis

An investment is committing funds for a period of time in order to receive future returns that compensate for inflation, risk, and the time value of money. Students tend to borrow rather than save because they have no income but want to invest in education to increase future earnings. Saving is still important for students to learn financial responsibility and plan for the future.

Uploaded by

SAMIA AKHTAR
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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1. Discuss the overall purpose people have for investing. Define investment.

Pg 3
An investment is the current commitment of funds for a period of time in order to derive a
future flow of funds that will compensate the investor for the time value of money and the
expected rate of inflation over the life of the investment as well as provide a premium for the
uncertainty associated with this future flow of funds.
2. As a student, are you saving or borrowing? Why?

Students in general tend to be borrowers because they are typically


not employed and thus have no income, but obviously consume and
have expenses. The usual intent is to invest the money borrowed in
order to increase their future income stream from employment. In
other words, students expect to receive a better job and higher income
due to their investment in education.
As a student try to put investment for the essential needs like purchasing knowledgeable books.And I think saving must
be an important aspect for an student because from this stage a student learns the importance of money & due to this
activity they will create a bright future.
3. Divide a person’s life from ages 20 to 70 into 10-year segments and discuss the likely saving or borrowing
patterns during each period.

4. Discuss why you would expect the saving-borrowing pattern to differ by occupation (for example,
for a doctor versus a plumber).
5. The Wall Street Journal reported that the yield on common stocks is about 2 percent, whereas a study
at the University of Chicago contends that the annual rate of return on common stocks since 1926
has averaged about 12 percent. Reconcile these statements.
6. Some financial theorists consider the variance of the distribution of expected rates of return to be a
good measure of uncertainty. Discuss the reasoning behind this measure of risk and its purpose.
7. Discuss the three components of an investor’s required rate of return on an investment.
8. Discuss the two major factors that determine the market nominal risk-free rate (NRFR). Explain
which of these factors would be more volatile over the business cycle. Pg 17
9. Briefly discuss the five fundamental factors that influence the risk premium of an investment. Pg 18
10. You own stock in the Gentry Company, and you read in the financial press that a recent bond offering
has raised the firm’s debt/equity ratio from 35 percent to 55 percent. Discuss the effect of this
change on the variability of the firm’s net income stream, other factors being constant. Discuss how
this change would affect your required rate of return on the common stock of the Gentry Company.
11. Draw a properly labeled graph of the security market line (SML) and indicate where you would
expect the following investments to fall along that line. Discuss your reasoning.
a. Common stock of large firms
b. U.S. government bonds
c. U.K. government bonds
d. Low-grade corporate bonds
e. Common stock of a Japanese firm

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