Bodie, Kane, Marcus Study Guide Essay examples

40916 Words Apr 2nd, 2013 164 Pages
Essentials of Investments, by Bodie, Kane and Marcus
8th Edition,

Teaching Notes

Chapter 01 - Investments: Background and Issues

The purpose of this book is to a) help students in their own investing and b) pursue a career in the investments industry. To help accomplish these goals Part 1 of the text (Chapters 1through 4) introduces students to the different investment types, the markets in which the securities trade and to investment companies. In this chapter the student is introduced to the general concept of investing, which is to forego consumption today so that future consumption can be preserved and hopefully increased in the future. Real assets are
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A related question may be stated as “Can we rely on markets to allocate capital to the best uses?” This refers to allocational efficiency and is related to the informational efficiency arguments above. If we don’t believe the markets are allocationally efficient then we have to start discussing what other mechanisms should be used to allocate capital and the advantages and disadvantages of another system. Because it is likely that any other system of allocation will be far more inefficient this discussion is likely to cause most of us to conclude that a market based system is still the best even if ours is not perfectly efficient, … and what in life is? Financial markets allow investors to shift consumption over time, and perhaps to make it grow through time. They allow investors to choose their desired risk level. A widow may choose to invest in a company’s bond, rather than its stock, but a “YUPPIE” may choose to invest in the same company’s stock in the hopes of higher return. Another investor may choose to invest in a government insured CD to eliminate any risk to the principal. Of course, the less risk an investor takes the lower the expected return.

Chapter 01 - Investments: Background and Issues

The large size of firms requires separation of ownership and management in today’s corporate world. The text states that in 2008 GE had over $800 billion in assets and over 650,000 stockholders. This

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