ECON 132A Lecture Notes - Lecture 2: Primary Market, Secondary Market, Credit Risk
Document Summary
Diversification: choosing different markets, industries, and companies to invest in. Real asset: used to produce goods and services. Financial assets: claims on real assets or claims on real-asset income. Fixed-income (debt) securities: money market instruments like bank cd"s, t-bills, commercial paper. Common stock (equity): ownership stake in an entity has a residual cash flow. More risky, more return (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) Risk-and-return trade-off: accepting higher risk = higher return, accepting lower risk = lower return. Given same risk on two investments, and a earns 6% and b earns. If a gives 5% return, and b gives 10% return; and b is 3x riskier than a, then that depends on your level of comfort with risk, but if you"re trying to be smart, go with a. What % of your funds will you invest in stocks, bonds, alternative investments (real estate, commodities) Security selection and analysis: choosing specific securities within asset class.
