Unit-I

Investment
 Investment
● Investment is the employment of funds on
assets with the aim of earning income or
capital appreciation.

● It has two attributes time and risk.

● Financial investment is the allocation of

money that are expected to yield some gain
over a period of time.
 Scope of Investment
Nature of Investment

• Investment is the application of For a common man

money for earning more money.
Income – Expenses = Investment/Saving

• According to economics, investment is the

utilization of resources in order to increase
income or production output in the future.

• Investment analysis ensures safety of principal

by proper reviewing the stock before investing
any amount. It evaluates the risk involved in
securities which helps in reducing risk of loss
of capital and income.

(1.00) 365
Objectives of
Investment
Objectives

● To Keep Money Safe

● To Help Money Grow

● To Earn a Steady Stream

of Income

● To Minimize the Burden of

Tax

● To Save up for Retirement

● To Meet your Financial

Goals
Economic Vs Financial Investment
Types of Investment
Investment Methodology
Trading in stocks
 Security Analysis
● A security is usually a tradable
financial instrument

● What can and can’t be called security

also depends on the relevant legal
environment

● For the purposes of analysis, a security

constitutes a point in risk-return space
 Return Risk
• Systematic risk implies
the overall market risk that
affects all securities and
cannot be diversified
away.
• Non systematic risk is
firm specific and can be
avoided by diversification.

• The required rate of return (RRR) is the minimum

amount of profit (return) an investor will seek or receive
for assuming the risk of investing in a stock or another
type of security.
• The expected return is the profit or loss that
an investor anticipates on an investment that has
known historical rates of return.
• A realized return is the amount of actual gains that is
made on the value of a portfolio over a specific
evaluation period.
 Systematic Risk Unsystematic Risk
Types
Types

Purchasing
Market Risk Power Risk Business Financial
Interest Risk Risk
Rate Risk

Also Known as Also Know Controllable

uncontrollable Risk as Risk
Basic Computation of Return & Risk
Q. You have ₹ 100,000 to invest for one year. One
alternative to buy treasury bill yielding 5% per
annum. There is no risk and expected return is 5%.
Another alternative is to invest the ₹ 100,000 in
stock. Possible outcomes from this investment are
shown below:

Probabilities Return
0.05 +50%
0.25 +30% Expected Return ??
0.40 +10% Risk (S.D>) ??
0.25 -10%
0.05 -30%
Solution
Expected Return = ∑ Return * Probability
= 0.05*0.50+ 0.25*0.30+ 0.40*0.10+0.25*(-
0.10)+0.05*(-0.30)
= 0.10 or 10 %
Risk = S.D. = √ E(R²) – [E(R)]²
E(R²) = 0.05*(0.50)²+ 0.25*(0.30)²+
0.40*(0.10)²+0.25*(-0.10)²+0.05*(-0.30)² = 0.046

[E(R)]² = (0.10)²

Risk = S.D. = √0.046 – (0.1)²

= 0.1897 = 18.97%
 Investment, speculation &
Gambling
● Difference between- Investment, Speculation and gambling
Thank
you