rcester State College

Instru ctor Manual By Robert Hartwig Wo rcester State College For

Fundamentals of I nvesting Thirteenth Edition Scott B. Smart Lawrence J. Gitman Michael D. Joehnk 1 / 4

©2017 Pearson Education, Inc.Chapter 1 The Investment Environment „ Outline Learning Goals

• Investments and the Investment Process
• Attributes of Investments
• Securities or Property
• Direct or Indirect
• Debt, Equity, or Derivative Securities
• Low- or High-Risk Investments
• Short- or Long-Term Investments
• Domestic or Foreign
• The Structure of the Investment Process

Concepts in Review II. Types of Investments

• Short-Term Investments
• Common Stock
• Fixed-Income Securities
• Bonds
• Convertible Securities
• Preferred Stock
• Mutual Funds
• Exchange-Traded Funds
• Hedge Funds
• Derivative Securities
• Options
• Futures
• Other Popular Investments

Concepts in Review III. Making Your Investment Plan

• Writing an Investment Policy Statement
• Summarize your current situation
• Specify your investment goals 2 / 4

• Smart/Gitman/Joehnk • Fundamentals of Investing, Thirteenth Edition

©2017 Pearson Education, Inc.

3. Step 3: Articulate your investment philosophy

4. Step 4: Set investment selection guidelines

5. Step 5: Assign responsibility for selecting and monitoring investments

• Considering Personal Taxes
• Basic Sources of Taxation
• Types of Income
• Ordinary Income
• Capital Gains and Losses
• Investments and Taxes
• Tax-Advantaged Retirement Savings Plans
• Investing over the Life Cycle
• Investments and the Business Cycle

Concepts in Review IV. Meeting Liquidity Needs with Short-Term Investments

• Role of Short-Term Investments
• Interest on Short-Term Investments
• Risk Characteristics
• Advantages and Disadvantages of Short-Term Investments
• Common Short-Term Investments
• Investment Suitability

Concepts in Review

• Careers in Finance
• Commercial Banking
• Corporate Finance
• Financial Planning
• Insurance
• Investment Banking
• Investment Management

Concepts in Review Summary Key Terms Discussion Questions Problems Case Problems 1.1 Investments or Golf?

1.2 Preparing Carolyn Bowen’s Investment Plan Excel @Investing 3 / 4

Chapter 1 The Investment Environment 3 ©2017 Pearson Education, Inc.„ Key Concepts

• The meaning of the term investment and the implications it has for individual investors
• Review the factors used to differentiate between different types of investments
• The importance of and basic steps involved in the investment process
• Popular types of investments including short-term investments, common stock, mutual funds and

exchange-traded funds, fixed-income securities such as bonds, preferred stock, and convertibles

• Derivative securities such as options and futures
• Other popular investments such as real estate, tangibles, and tax-advantaged investments
• Writing an investment plan
• Building a diversified portfolio consistent with investment goals
• Sources of taxation, types of taxable income, and the effect of taxes on the investor
• Developing an investment program that considers differing economic environments

and the life cycle

• The use of short-term securities in meeting liquidity needs
• The merits and suitability of various popular short-term investments, including deposit accounts and

money market securities „ Overview This chapter provides an overview of the scope and content of the text.

• The term investment is defined, and the alternative investment opportunities available to investors are

classified by types.

• The structure of the investment process is examined. This section explains how the marketplace

brings together suppliers and demanders of investment funds.

• The key participants in the investment process—government, business, and individuals—are

described, as are institutional and individual investors.

• Returns are defined as rewards for investing. Returns to an investor take two forms—current income

and increased value of the investment over time. In this section, the instructor need only define return, since there will be another opportunity to develop the concept of return in Chapter 4; also, providing information about recent investment returns always engages students’ attention.

• Next, the following investments available to individual investors are discussed: short-term

investments common stock, fixed-income securities, mutual funds, exchange-traded funds, hedge funds, real estate, tangibles, tax-advantaged investments, and options and futures. The text describes their risk-return characteristics in a general way. The instructor may want to expand on the advantages and disadvantages of investing in each, although they will be treated in greater detail in

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