Investment Chalennge
SIMULATION GAME
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Why Do Individuals Invest ?
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By saving money (instead of
spending it), individuals forego
consumption today in return for a
larger consumption tomorrow.
How Do We Measure The Rate
Of Return On An Investment ?
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real rate of interest
inflation premium
risk premium
Defining an Investment
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Any investment involves a current commitment of
funds for some period of time in order to derive
future payments that will compensate for:
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the time the funds are committed (the real rate of return)
the expected rate of inflation (inflation premium)
uncertainty of future flow of funds (risk premium)
The Investment Decision Process
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Two-step process:
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Security analysis
 Necessary
to understand security characteristics and
applied to these securities to estimate their price or
value
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Portfolio management
 Selected
securities viewed as a single unit
 How and when should it be revised?
 How should portfolio performance be measured?
Factors Affecting the Process
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Uncertainty in ex post returns in decision process
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Future unknown and must be estimated
Foreign financial assets – opportunity to enhance
return and/or reduce risk
Investors must now cope with a changed investing
environment
Internet changes investments environment
Institutional investors are important
How efficient are financial markets in processing
new information?
Corporate Governance
Main issues:
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The accountability of the Board of Directors and
Management
A re-examination of accounting and auditing
practices
Management compensation arrangements such as
executive stock option plans
Disclosure requirements
The effectiveness of existing regulatory bodies
Appendix 1-A: The Chartered
Financial Analyst® (CFA®)
Program
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Individuals who are interested in the
investment area should consider seeking a
CFA designation
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Level I emphasizes tools and inputs
Level II emphasizes asset valuation
Level III emphasizes portfolio management
For more information: www.cfainstitute.org
Appendix 1-B:
Professional Educational
Alternatives
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Canadian Securities Institute (CSI)
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The CSI offers the Canadian Securities Course
(CSC), which is a mandatory requirement for
individuals who wish to become licensed to sell
financial securities in Canada and to register to sell
mutual funds
CFA Institute (formerly Association for
Investment Management and Research (AIMR))
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The CFA institute administers the Chartered
Financial Analyst ® curriculum and examination
program
Appendix 1-B:
Professional Educational
Alternatives
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Financial planners
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The Financial Planners Standards Council (FPSC)
developed a set of minimum standards regarding
education, experience, and ethical and moral
conduct for financial planners