ch1 investments: background and issues Flashcards
real assets
assets used to produce goods and services.
investment
commitment of current resources in the expectation of driving greater resources in the future
examples of real assets
patents, customer goodwill, college education
financial assets
claims on real assets or the income generated by them
examples of financial assets
lease obligations, a $5 bill
fixed-income (debt) securities
pay a specified cash flow over a specific period
equity
an ownership share in a corporation
derivative securities
securities providing payoffs that depend on the values of other asssets
agency problems
conflicts of interest between managers and stockholders
asset allocation
allocation of an investment portfolio across broad asset classes
security selection
choice of specific securities within each asset class
security analysis
analysis of the value of securities
risk-return trade-off
assets with higher expected returns entail greater risk
passive management
buying and holding a diversified portfolio without attempting to identify mispriced securities
active management
attempting to identify mispriced securities or to forecast broad market trends