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CHAPTER 1
AN INTRODUCTION TO INVESTMENTS
TEACHING GUIDES FOR QUESTIONS IN THE TEXT
Since the primary purpose of the first chapter is to set several themes that will reappear
throughout the text, there are no questions, problems, or cases at the end of the chapter.
THE INVESTMENT ASSIGNMENT (PART 1)
I do little trading, so investment games are inconsistent with my investment philosophy and
strategy. Although I do not discourage students from participating in a game, I also do
nothing to encourage their use. I, however, have included two investment assignments at
the end of the first chapter. The first reapers throughout the text, but the second one could
also be used throughout the semester. Both request the student to track stock prices (i.e., set
up a watch account). During the semester, additional material is added such as beta
coefficients in Chapter 5.
Since there is no trading in the individual securities, the assignment is essentially a passive
instructional tool. An instructor, however, may use the assignments as the basis for a more
active assignment if he or she prefers. (I have thought about dividing the class into two
groups and have the members of one group trade every week or two and compare their
results to the students who had to hold their initial selections for the entire semester.)
SUPPLEMENTAL QUESTIONS
The following are questions that were used in prior editions. These questions may be used
to establish themes that reappear throughout the semester.
1. What is the distinction between liquidity and marketability?
2. What is risk?
Answer: Risk refers to the possibility of loss. It is the uncertainty that the expected future
3. What is the relationship between risk and expected return?
4. A significant part of this text is devoted to valuation. What causes an asset to have
value today?
5. What is the implication of an efficient securities market for the return an investor will
earn over a period of time?
