Chapter 01 – The Investment Environment
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CHAPTER ONE
THE INVESTMENT ENVIRONMENT
CHAPTER OVERVIEW
The student is introduced to the general concept of investing—to forego spending cash today in the hopes
of increasing wealth in the future. Real assets are differentiated from financial assets, and the major
LEARNING OBJECTIVES
After studying this chapter, students should have an understanding of the overall investment process and
PRESENTATION OF CHAPTER MATERIAL
1.1 Real Assets versus Financial Assets
The main elements of the chapter are presented here. The concept of giving up current consumption to
1.2 Financial Assets
Fixed income securities include both long-term and short-term instruments. The essential element of debt
securities and the other classes of financial assets is the fixed or fixed formula payments that are
1.3 Financial Markets and the Economy
Financial assets (and hence markets where they are traded) play a big role in developed economies by
Chapter 01 – The Investment Environment
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1.4 The Investment Process
Section 1.4 describes the major components of the investment process. Two of the major elements in the
1.5 Markets are Competitive
The two major elements of active management are security selection and timing. Material in later
1.6 The Players
The major participants in the financial markets are discussed here. Governments, households and
1.7 The Financial Crisis of 2008
Section 1.7 presents the Financial Crisis of 2008, with emphasis on its antecedents and its significance in
the future of the financial world. It begins with events leading up to the crisis and introduces the
important Case-Shiller Index of U.S. housing prices (of which the students should be familiar). The
1.8 Outline of the Text
In this section, the authors divide the text into seven independent learning Parts, with several chapters in
each Part. This can be useful for instructors when developing the course syllabus.