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Hassan,
Email: hassanudinmtt@help.edu.my
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FIN204
ASSESSMENT
Assignment 1 20%
Assignment 2 20%
To gain a PASS:
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Chapter 1
Introduction to
Investing
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Objectives
To understand the investments field as
currently practiced
To help you make investment decisions
that will enhance your economic
welfare
To create realistic expectations about
the outcome of investment decisions
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Investments Defined
1-5
Why Study Investments?
1-6
Investment Decisions
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The Tradeoff Between
Expected Return and Risk
Investors manage
risk at a cost -
lower expected
Stocks
returns (ER)
ER
Any level of Bonds
expected return
and risk can be
attained Risk-free Rate
Risk
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The Investment Decision Process
Two-step process:
Security analysis and valuation
Necessary to understand security characteristics
Portfolio management
Selected securities viewed as a single unit
How efficient are financial markets in processing
new information?
How and when should it be revised?
How should portfolio performance be measured?
1-9
Factors Affecting the Process
1-10
Chapter 2
Financial Assets
Available to Investors
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Types of Investment
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Nonmarketable Financial Assets
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Money Market Securities
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Capital Market Securities
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Bond Characteristics
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Bond Characteristics
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Innovation in Bond Features
Callable Bonds
Call provision gives the issuer the right to
call in the bonds.
Exercise the call provision is attractive for
the issuer of the bonds when market
interest drop substantially below the
coupon rate.
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Innovation in Bond Features
Zero-coupon bond
Sold at a discount and redeemed for face
value at maturity
Locks in a fixed rate of return, eliminating
reinvestment rate risk
Responds sharply to interest rate changes
May have call feature
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Corporate Bonds
Usually long term unsecured debt,
paying semi-annual interest, callable,
with par value of $1,000
Convertible bonds may be exchanged for
the companys share at the bond holders
discretion
Risk of bond is that issuer may default on
payments
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Bond Ratings
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Bond Ratings
Investment grade securities
Rated AAA, AA, A, BBB
Typically, institutional investors are confined
to bonds in these four categories
Speculative securities
Rated BB, B, CCC, C
Significant uncertainties
C rated bonds are not paying interest
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Securitization
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Equity Securities
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Preferred Stocks
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Common Stocks
Common stockholders are residual claimants
on income and assets
Par value is face value of a share
Usually economically insignificant
Genting Par Value RM0.10
BAT Par Value RM0.50
Lion Corp Par Value RM1.00
Book value is accounting value of a share
Total stock holders equity divided by total number of
shares issued
Market value is current market price of a
share
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Common Stocks - Dividend
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Common Stocks - Dividend
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Common Stocks
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Common Stocks P/E Ratio
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Common Stocks Example of P/E
HELP
Price: 1.97
Sunway
Price: 3.50
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Common Stocks Example of P/E
HELP
Price: 1.97
EPS: RM 0.095
P/E = 1.97/0.095= 20.74
Sunway
Price: 3.50
EPS: 0.432
P/E = 3.5/0.432= 8.10
Now, which is more expensive ?
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Derivative Securities
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The End
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Tutorial Questions
Chapter 1
Questions:
1, 2, 4, 5, 7, 9, 10, 11
Chapter 2
Questions:
1,2, 4, 11, 12
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