Summary
Summary Business Investment
- Course
- Institution
A thorough 1940 word document on business investment.
[Show more]
Seller
Follow
RomyM1
Content preview
Investment is the creation of wealth through the use ofcapital.
The major asset classes and risk:
Four major asset classes:
Cash Property Bonds Equities
Cash: Low Risky
Examples: Bank deposits and money market( short term trade in loans between banks
and other financial institutions) accounts.
Offers investors regular interest income.
Capital is not subject to huge external fluctuations
Cannot be used to male a huge fortune, however can safeguard from losing one.
Property: Moderate to high risk
Can keep up with inflation.
Very effective way of gearing investment.
By using external financing, investors can make a profit out of borrowed money.
This is called positive leverage effect
The success of this type of investment depends on location, political as well as eco-
nomic environment.
Drawback of this asset class is lack of liquidity (how quickly asset can be converted to
cash)
Safest option is therefore to own a home.
Bonds: Moderate Risk:
Bonds/gilts are interest bearing securities issued by government or companies in order
to borrow money.
They promise to pay the lender interest as the lenders capital on a specific date
The interest payments can be higher than on cash
, Equities: High risk:
Means that investors have obtained part-ownership in the company whose shares they
have bought.
Owners of shares are called shareholders.
Public companies are listed on the stock exchange like the JSE in South Africa.
Equities have the best chance of bearing inflation over the long term.
The longer the time before retirement means the more one should invest in equities.
Profits received by shareholders from a company are called DIVIDENDS.
Rule of Investment:
The bigger the risk, the greater the possible reward/return.
The smaller the risk, the smaller the return/reward.
Diversification:
Means spreading the investment risk between the various asset classes.
Simply put it means, not putting all your eggs in one basket.
Risk Profiling:
It is an evaluation of an individual/organisation’s willingness to take risks.
Important for determining a proper investment asset allocation for a portfolio
Used as a way to mitigate potential risks and threats
Decided into:
Risk capacity: ability to take risks. Depends on age, income, dependents.
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller RomyM1. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $9.10. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
67474 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now