Unit 4 - Investment

Investment- We are redirecting resources, that you would consume now for the future.

Financial Asset- claims on property and income of the borrower

Financial Intermediaries- institution that channels funds from savers to borrowers.

Interest in relationship savers, saver is me, and institution is a bank, the bank invests.

3 Purposes for Financial Intermediaries
1. Share risk
-Diversification- spreading out investment to reduce risk

2. Providing Information
-Stock-broker to advise you what to do to see

3. Liquidity
-Easily to convert to cash
-Returns- the money and inverses above and beyond the sum of money that was intentionally invested.

*The higher the risk, the higher the investment bond.

Bonds
3 Components of a Bond
-Coupon rate
-MaturityPar
-Value

-Bonds are Loans or IOUs that represent debt that the Gov't or a cooperation must repay to an invester

-Bonds are generally low risk investments

Coupon Rate

-The interest rate that a bond issuer will pay to a bond holder

Maturity

-The time at which payment to a bond holder is due

 

Par Value

-The amount that an investor pays to purchase a bond and that will be re payed to an investor at maturity

Yield 

-Annual rate of return on a bond of the bond were held to maturity 

Bond you LOAN

Stocks you OWN