OVERVIEW
We regard this chapter as a complement to Chapter 20, “Mastering Financial Management,” because the money for financing business firms is derived largely from the investments of individuals. We begin by emphasizing the importance of managing personal finances, budgeting, and establishing specific investment objectives. Then we discuss the steps needed to establish an investment program. Next, we explain the difference between the primary and secondary market and examine the role of an investment banking firm. We follow by outlining the steps in a typical stock transaction, noting the functions of a brokerage firm and the importance of choosing a full-service account executive or a discount broker. We also discuss the legal environment of securities trading. The investment alternatives discussed throughout the chapter are measured against five factors: safety, risk, income, liquidity, and growth. We consider traditional forms of investment, some of which were introduced in earlier chapters; these include bank accounts, corporate and government bonds, common and preferred stock, mutual funds, and real estate. We then discuss high-risk investment vehicles: buying stock on margin, selling short, and other high-risk investments. We conclude by examining sources of financial information including the Internet, newspapers, and other sources of information that can be used to evaluate investment alternatives.
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Learning Objectives
After studying this chapter, students should be able to:
1. Explain why you should manage your personal finances and develop a personal investment program.
2. Describe how the factors of safety, risk, income, growth, and liquidity affect your investment program.
3. Understand how securities are bought and sold.
4. Identify the advantages and disadvantages of savings accounts, bonds, stocks, mutual funds, and real estate investments.
5. Describe high-risk investment techniques.
6. Use financial information to evaluate investment alternatives. |
Format for Discussion Questions: Typed, (Question in bold) followed by double space and then your answer.
Assignments may be
submitted in class paper copy, email, or via Blackboard.
Late assgnments will recieve a maximum of 50% credit
CLASS PREPARATION
READ Chapter 20, Video Case 20.1 Be prepared to discuss the questions at the end of the case
READ Running a Business Part VII Graeter's Plans for Financing. Be prepared to discuss the questions at the end of the case
Answer Discussion Questions 1,4
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