Middle Test

Investment Management

Nama
NIM
Date
TTD

: Magda Saracindy Firdiana

: 125030200111152
: 15 April 2015
:

Investment Process
Money committed or property acquired for future income. Two main classes of
investment are (1) Fixed income investment such as bonds, fixed deposits, preference
shares, and (2) Variable income investment such as business ownership (equities), or
property ownership. Return on investment (ROI) is a key measure of an organization's
performance.
Types of Investments:

Securities or Property; Securities, Real Property, Tangible Personal Property.

Direct or Indirect: Direct: investor directly acquires a claim; Indirect: investor owns

part of a portfolio.
Debt, Equity or Derivative Securities: Debt: investor lends funds in exchange for
interest income and repayment of loan in future (bonds); Equity: represents ongoing
ownership in a business or property (common stocks); Derivative Securities: neither

debt nor equity; derive value from an underlying asset (options).

Low Risk or High Risk.
Short-Term or Long-Term.
Domestic or Foreign.

Market And Instruments.

When company need funds, they can earn from 3 way:
1. Take from retained earnings, is the percentage of net earnings not paid out as
dividends, but retained by the company to be reinvested in its core business, or to
pay debt.
2. Issue Bonds, A bond is a debt investment in which an investor loans money to an
entity (typically corporate or governmental) which borrows the funds for a
defined period of time at a variable or fixed interest rate.
3. Issue Common stock, A security that represents ownership in a corporation.
How Securities Are Traded
Firms issue securities to raise the capital necessary to finance their investments.
Investment bankers market these securities to the public on the primary market.
Investment bankers generally act as underwriters who purchase the securities from the
firm and resell them to the public at a markup.
Trading may take place in dealer markets, via electronic communication networks, or in
specialist markets. Brokers for individuals execute trades at the best available prices.

Short-selling is the practice of selling securities that the seller does not own. The shortseller borrows the securities sold through a broker and may be required to cover the short
position at any time on demand.
Securities trading is regulated by the Securities and Exchange Commission, by other
government agencies, and through self-regulation of the exchanges. Many of the
important regulations have to do with full disclosure of relevant information concerning
the securities in question. Insider trading rules also prohibit traders from attempting to
profit from inside information.
History of Interest Rates and Risk Premium

Factors that effect the Interest Rates : However forecasting interest rates is not
easy. We have to understand the factors that effect the rates and determine the
level of interest rates:
o The supply of funds from savers, primarily households.
o The demand of funds from businesses to invest in plant and equipment.
o The governments net supply and demand of funds.

The Equilibrium Real Rate of Interest Rate

o Equilibrium is the point at which demand and supply curve intersect, point
E.
o Government can shift these demand and supply curves either to the right
or to the left through fiscal and monetary policies.

Taxes and the Real Rate of Interest : Tax liabilities are based on nominal income
and the tax rate determined by the investors tax bracket.

Risk And Risk Premiums : Risk means uncertainty about future rates of return.
We can quantify that uncertainty using probability distributions.

The Historical Record : The record of past rates of return is one possible source of
information about risk premiums and standard deviations. We can estimate the
historical risk premium by taking an average of the past differences between the
returns on an asset class and the risk-free rate.