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Summary BUSINESS DRIVEN INFORMATION SYSTEMS

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AN INVESTMENT IS the current commitment of money or other resources in the expecta- tion of reaping future benefits. For example, an individual might purchase shares of stock anticipating that the future proceeds from the shares will justify both the time that her money is tied up as well as the risk of the investment. The time you will spend studying this text (not to mention its cost) also is an investment. You are forgoing either current leisure or the income you could be earning at a job in the expectation that your future career will be sufficiently enhanced to justify this commitment of time and effort. While these two investments differ in many ways, they share one key attribute that is central to all investments: You sacrifice something of value now, expecting to benefit from that sacrifice later. This text can help you become an informed practitioner of investments. We will focus on investments in securities such as stocks, bonds, or options and futures contracts, but much of what we discuss will be useful in the analysis of any type of investment. The text will pro- vide you with background in the organization of various securities markets; will survey the valuation and risk-management principles useful in particular markets, such as those for bonds or stocks; and will introduce you to the principles of portfolio construction. Broadly speaking, this chapter addresses three topics that will provide a useful per- spective for the material that is to come later. First, before delving into the topic of “invest- ments,” we consider the role of financial assets in the economy. We discuss the rela- tionship between securities and the “real” assets that actually produce goods and ser- vices for consumers, and we consider why financial assets are important to the function- ing of a developed economy. Given this back- ground, we then take a first look at the types of decisions that confront investors as they assemble a portfolio of assets. These invest- ment decisions are made in an environment where higher returns usually can be obtained only at the price of greater risk and in which it is rare to find assets that are so mispriced as to be obvious bargains. These themes—the risk–return trade-off and the efficient pricing of financial assets—are central to the invest- ment process, so it is worth pausing for a brief discussion of their implications as we begin the text. These implications will be fleshed out in much greater detail in later chapters. We provide an overview of the organiza- tion of security markets as well as the various 11The Investment Environment PART I CHAPTER ONE

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ISBN: 9780073530703 Front endsheets
Author: Bodie/Kane/Marcus Color: 4c
Title: Investments, 9e Pages: 2,3

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ISBN: 9780073530703 Front endsheets
Author: Bodie/Kane/Marcus Color: 4c
Title: Investments, 9e Page: 4, Insert

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