investments, 8 th edition bodie, kane and marcus slides by susan hine mcgraw-hill/irwin copyright ©...
TRANSCRIPT
Investments, 8th edition
Bodie, Kane and Marcus
Slides by Susan HineSlides by Susan Hine
McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
CHAPTER 1CHAPTER 1 The Investment The Investment EnvironmentEnvironment
1-2
Real Assets Versus Financial Assets
• Essential nature of investment
– Reduced current consumption
– Planned later consumption
• Real Assets
– Assets used to produce goods and services
• Financial Assets
– Claims on real assets
1-3
Table 1.1 Balance Sheet of U.S. Households, 2007
1-4
Table 1.2 Domestic Net Worth
1-5
A Taxonomy of Financial Assets
• Fixed income or debt
– Money market instruments
• Bank certificates of deposit
– Capital market instruments
• Bonds
• Common stock or equity
• Derivative securities
1-6
Financial Markets and the Economy
• Information Role
– The Google effect
• Consumption Timing
• Allocation of Risk
• Separation of Ownership and Management
– Agency Issues
1-7
Financial Markets and the Economy Continued
• Corporate Governance and Corporate Ethics
– Accounting Scandals
• Examples – Enron, Rite Aid, HealthSouth
– Auditors—watchdogs of the firms
– Analyst Scandals
• Arthur Andersen
– Sarbanes-Oxley Act
• Tighten the rules of corporate governance
1-8
The Investment Process
• Asset allocation
– Choice among broad asset classes
• Security selection
– Choice of which securities to hold within asset class
• Security analysis
1-9
Markets are Competitive• Risk-Return Trade-Off
• Efficient Markets
– Active Management
• Finding mispriced securities
• Timing the market
– Passive Management
• No attempt to find undervalued securities
• No attempt to time the market
• Holding a highly diversified portfolio
1-10
The Players
• Business Firms– net borrowers• Households – net savers• Governments – can be both borrowers and
savers• Financial Intermediaries
– Investment Companies– Banks– Insurance companies– Credit unions
1-11
The Players Continued
• Investment Bankers
– Perform specialized services for businesses
– Markets in the primary market
1-12
Table 1.3 Balance Sheet of Commercial Banks, 2007
1-13
Table 1.4 Balance Sheet of Nonfinancial U.S. Business, 2007
1-14
Recent Trends—Globalization
• American Depository Receipts (ADRs)
• Foreign securities offered in dollars
• Mutual funds that invest internationally
• Instruments and vehicles continue to develop (WEBs)
• Exchange Traded Funds (ETFs)
1-15
Figure 1.1 Globalization: A Debt Issue Denominated in Euros
1-16
Recent Trends—Securitization
• Mortgage pass-through securities
• Other pass-through arrangements
– Car, student, home equity, credit card loans
• Offers opportunities for investors and originators
1-17
Figure 1.2 Asset-backed Securities Outstanding
1-18
Recent Trends—Financial Engineering
• Use of mathematical models and computer-based trading technology to synthesize new financial products
• Bundling and unbundling of cash flows
1-19
Figure 1.3 Building Creates a Complex Security
1-20
Figure 1.4 Unbundling of Mortgages into Principal- and Interest-Only Securities
1-21
Recent Trends—Computer Networks
• Online information dissemination
• Information is made cheaply and widely available to the public
• Automated trade crossing
– Direct trading among investors