Mba 3rd Sem Finance Notes (Bangalore University)

Module 1 :Investment Avenues
Finance specialization paper 1

Bangalore university
Investment Analysis and managements
Investment Analysis and Management 1

What investment is not
• A get rich quick scheme
• A method to take on risky portfolios to get a
high return on investment’
• Throwing your money into some random
event
• Going to the casino
• Or to the racecourse
• (above two - zero beta but non zero risk)

What is an investment?
• It is a use of money to make more money
• It is a means of getting capital gains
• It is a way of “asset diversification” – from
cash to say gold, or even to finance accounts
receivable
• Ultimately, it is a better than keeping the
money in the mattress!

What is an investment?
• Investopedia definition: The act of committing money
or capital to an endeavor with the expectation of
obtaining an additional income or profit
• A good example is this MBA program which you are
attending
• You are investing time, money and energy into this
effort, in the hopes of attaining lifelong skills and
earning ability till retirement
• Most of us will work for an organization so the
investment will pay back periodically, hopefully at
increasing levels
• Think of your investment a bond with infinite maturity
paying inflation adjusted coupons until retirement

Why should one invest?
• To beat inflation
• To progressively maintain quality of life
• To retire comfortably
• To hopefully leave something for the next
generation or two

Types of investments
• Broadly, one could classify the investment types
as financial and non financial types of investment
• Financial investments into capital markets
typically entail bonds, stocks derivatives or a
combination of the three
• Financial investments in money markets include
fixed deposits, short term treasury bills etc
• The fundamental paradigm in financial
investment is the risk return tradeoff, usually
measured by historical returns in the case of
equities as well as derivatives
Types of investments
• Non financial investments could include
precious metals, real estate
• Here the hope is to get returns through
appreciation in value of asset either in their
raw form or through value additions
• Risk includes downturn in these markets
• Non financial investment could also include
investment in companies
• Here, one is investing in the assets of a
company in the hope of capital gain in the
share

Other forms of investment
• They range from stamp and coin collections to
antique cars to rare baseball cards
• Some people invest in art forms – paintings,
sculptors
• Coffee plantations and vineyards are long
term investments as are teak and mango
fields
• Education is also a lifelong investment

Other forms of investment
• They range from stamp and coin collections to
antique cars to rare baseball cards
• Some people invest in art forms – paintings,
sculptors
• Coffee plantations and vineyards are long
term investments as are teak and mango
fields
• Education is also a lifelong investment

High versus low risk
• Risk range • Risk pyramid

Personalizing the Pyramid
Not all investors are created equally. While
others prefer less risk, some investors prefer
even more risk than others who have a larger net
worth. This diversity leads to the beauty of the
investment pyramid.
Those who want more risk in their portfolios can
increase the size of the summit by decreasing the
other two sections, and those wanting less risk
can increase the size of the base.
The pyramid representing your portfolio should
be customized to your risk preference.

Personalizing the Pyramid
• It is important for investors to understand the
idea of risk and how it applies to them.
• Making informed investment decisions entails
not only researching individual securities but also
understanding your own finances and risk profile.
• To get an estimate of the securities suitable for
certain levels of risk tolerance and to maximize
returns, investors should have an idea of how
much time and money they have to invest and
the returns they are looking for.

Risk preference
• Time horizon: if the money going to be
invested is going to be required in 1 year or
less for a down payment or for college tuition
then stocks are not a good idea
• Bankroll: The money which one can afford to
lose should be invested, otherwise it may
cause liquidity issues

What is an investment
philosophy?
• An investment philosophy is a structured way of thinking
about markets, how they work (and sometimes do not)
and the types of mistakes that you believe consistently
underlie investor behavior
• An investment strategy is much narrower. It is a way of
putting into practice an investment philosophy
• For lack of a better term, an investment philosophy is a
set of core beliefs that you can go back to in order to
generate new strategies when old ones do not work

Constituents of investment
philosophy
• Step 1: All investment philosophies begin with a view on how human
beings learn (or fail to learn) Underlying each philosophy is therefore
is a view of human frailty – that people learn too fast, too slow, tend
to crowd behavior etc….
• Step 2: From step 1, you create a view about market behavior and
perhaps where they fail…. Views on market efficiency or inefficiency
are the foundations for your investment philosophy
• Step 3: This step is tactical. You take your views about how investors
behave and markets work (or fail to work) and try to devise strategies
that reflect your beliefs

Why does one need an investment philosophy?
• To protect themselves against hoaxes, to be able to

convince oneself about ideas rather than rely solely
on others and mainly to have a core set of beliefs
• Lowering transaction costs by not shifting from
investment strategies in a sporadic or non structured
manner
• Adopting a strategy which suits your risk/return
profile or if you are a portfolio manager, developing
a portfolio for your client which suits their risk return
profile

The investment process
The client
Utility Tax code
functions Risk Investment Horizon Tax status
tolerance/Aversion
Portfolio manager’s job

Risk
Asset allocation Views on
Views on and
Asset Stocks Bonds Real Assets Inflation return
markets Rates
classes
Countries Domestic International growth
Valuation basis Security selection Mkt

Private
Cash efficien
flows/comparables/c Which stocks/bonds/real assets? information cy
harts & indicators
Trading costs, Execution

Trading Tradin
Commissions How often do you trade? g
speed
Bid/Ask spread How large are your trades? system
s
Price impact Use of derivatives to manage risk?
Performance evaluation
1. How much risk did portfolio mgr take? Stock Risk models
Market
2. What return did portfolio manager make? CAPM APT
Timing selectio
3. Did the portfolio manager under/out perform ? n

Categories of investment philosophies
• Market timing versus asset selection: Market timing bets on movement of
entire market – for financial as well as real assets while in asset selection
timing is not important and you focus on picking good investments within
each market
• Activist Investing versus Passive Investing: With passive investing, you take
positions in companies and hope that the market corrects its mistakes.
With activist investing, you play a role (or provide the catalyst) in
correcting market mistakes.
• Time Horizon: Some philosophies require that you invest for long time
periods. Others are based upon short holding periods.

Investment constraints
Constraints are hindrances or obstacles which
has an impact on investment action. The
constraints reduces the chances of achieving
the investment objectives. A rationale investor
should identify these constraints and take them
into account while selecting the securities
Investment Analysis and Management

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Investment constraints
The investment constraints are:
• Liquidity
• Tax shelter
• Time horizon
• Portfolio risk level
• Allowed securities
• Diversification

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Investment strategies
Investment strategy is a set of rules, behaviour or
procedures, designed to guide an investor’s
selection of an investment portfolio.
The strategy is designed around investor’s risk
return tradeoff, some investors will prefer to
maximise expected returns by investing in risky
assets, others will prefer to minimise risk , but
most will select a strategy somewhere in between.

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Investment strategies
Active portfolio strategy
Strives to earn superior risk adjusted returns. It
is based on the premise that the capital market
is characterised by the inefficiencies and it is
followed by investment professionals and
aggressive investors.

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Active portfolio strategies
There are five dimensions of active portfolio
strategies:
• Market timing
• Sector rotation
• Security selection
• Use of specialised concepts
• Combination of above

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Passive portfolio strategies
It is based on the assumption that the capital
market is informally inefficient. An investor
should create a well diversified portfolio at a
predetermined level of risk exposure and hold
the portfolio of stocks that relatively is
unchanged over time till it becomes
inadequately diversified or inconsistent with
the unique risk-return preferences.

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Investment verses Speculation
• Investment involves employment of funds
with the expectation of earning additional
income or capital appreciation or both.
• Speculation involves buying and selling of
securities or other asset, in the hope of making
profit from anticipated change in the prices.

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• Investment is long term in nature.
• Speculation is a short term activity.
• Investment has less degree of risk.

• Speculation involves a high degree of risk.

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• Marketable asset is not necessary for
investment.
• Marketable asset is necessary for speculation.
• The person who indulges in investment

activity is called investor.
• The person who indulges in speculation
activity is called speculator.
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• Greater emphasis is laid on the fundamental
factors and attempts a careful evaluation of the
firm’s prospects.
• Heavily relies on technical charts and market
psychology.

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Arbitrage and Gambling
• Arbitrage refers to the simultaneous purchase
and sale of securities/assets in two different
markets to take advantage of price
differentials. It involves making profits from
the differences in the prices prevailing in two
markets.

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Gambling
• Gambling is a high risk venture, not only for
higher returns but also for associated
excitement. It is unplanned and unscientific
activity with the knowledge of risk involved.
• It is based on blind chance without any
rational basis. A gambler could lose all his
capital in the trading process based on his
emotions

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Types of investors
Individual investors/Retail investors

Institutional investors

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• Individual investors are large in number.
• Investible resources available with them are low.
• They lack the skills required to carry out extensive
analysis and evaluation before investing.
• They may manage their own investments without
investment managers, directly investing through a
brokerage account, bank savings account, government
savings bonds or certificate of deposits. If they do, utilize
investment managers for investing in pooled investment
vehicles such as mutual funds.

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• They do not have enough time and resources to
engage in such an analysis to find out the intrinsic
worth of investments.
• They have a difficult time while determining their
portfolio.
• Investment selection becomes almost a hit and run
mechanism for them.
• They depend on other sources of information
within their reach to arrive at investment decision.
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• They are the institutions/organisations with
surplus funds who indulge themselves in
investment activities. Ex: NBFC’s, Investment
companies, Mutual funds, Insurance companies
etc.
• They are few in number compared to individual
investors.
• They engage professionals to carry out critical
analysis and evaluation of wide investment
avenues available.
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• They carry out their investment activity on a
realistic and systematic manner.
• They have a great advantage over the average
individual investors in managing their
investment portfolio.

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Summary
We discussed:
• Investment constraints
• Investment strategy
• Investment verses speculation
• Arbitrage
• Gambling
• Types of investors
• Investor behaviour

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Debenture
Debentures includes debenture stock, bonds and any

other securities of a company, whether constituting a
charge on the assets of the company or not.
A debenture is an instrument issued by a company
under its common seal, acknowledging its debt to the
holder, and containing an undertaking to repay the debt
on or after a specified period and to pay interest on the
debt at a fixed rate at regular intervals usually half
yearly, until the debt is repaid.
warrants
A warrant is a security issued by a company,
granting a specified number of shares, at a
specified price, any time prior to an expirable
date. they may be issued with a debentures of
equity shares. they specify the number of
shares entitled, the expiration date,along with
the stated price.

Equity shares
Equity shares represent an ownership position in a corporation.
It is a residual claim, in the sense that creditors and preference
shareholders must be paid before shareholders can receive any
payment. In the event of liquidation, equity shareholders are
entitled to assets remaining only after all prior claimants have
been satisfied. Thus the risk is highest with equity shares and
so must be its expected return. When investors buy equity
shares, they receive certificates of ownership as proof of their
being part owners of the company which states the number of
shares purchased and their value.

Advantages of Equity shares
• Potential for profit
• Limited liability
• Hedge against inflation
• Free transferability
• Share in growth
• Tax advantage

Form of equity capital
• Authorised capital
• Issued capital
• Paid-up capital

Nature of equity shares
• Evidence of ownership
• Maturity of equity shares
• Par value
• Financial analysis and accounting data
• Pre-emptive right
• Voting right

Valuation of rights
Rights issue is made to expand the capital. It is
priced below the current market price to attract the
existing shareholders which will be generally
between 10 to 20 percent lower than the current
market price. When right issue is announced, all the
existing shareholders have the right to subscribe for
new shares and so there are rights attached to the
existing shares.They are also called “cum
rights”(rights attached) and are traded cum rights

Classification of equity shares in the
market parlance
• Growth shares
• Blue chip shares
• Income shares speculative shares
• Cyclical shares
• Defensive shares

Classification of equity shares
according to Peter Lynch
Slow growers
Stalwarts
Fast-growers
Cyclicals
Turnarounds
Asset oppurtunities

Preference shares
• Preference shares are those shares which carry with them
preferential rights for their holders, i.e, preferential right as to
fixed rate of dividend & as to repayment of capital at the time
of winding up of the Company.

Characteristics
• Fixed rate of dividend.
• Priority as to payment of dividend.
• Preference as to repayment of capital during
liquidation of the Company.
• Generally preference shareholders do not have voting
rights.
• According to The Companies (Amendment) Act, 1988,
the preference shares are redeemable & the maximum
period for which they can be issued is 10 years.

Kinds of Preference Shares
 On the basis of cumulation of dividend :
 Cumulative Preference Shares:
They are those shares on which the dividend at a
fixed rate goes on cumulating till it is all paid.
 Non Cumulative Preference Shares:
These are those shares on which the dividend does
not cumulate.

 On the basis of participation :
 Participating Preference shares:
This type of shares are allowed to participate in
surplus profits during the lifetime of the company &
surplus assets during winding up.
 Non Participating Shares:
These shares are not entitled to participate in surplus
profit. Dividend at fixed rate is given.

 On the basis of conversion :
 Convertible preference shares:
The owners of these shares have the option to convert their preference
shares into equity shares as per the terms of issue.
 Non-convertible preference shares:
The owners of these shares do not have any right of converting their
shares into equity shares.
 On the basis of redemption:
 Redeemable preference shares:
These are to be purchased back by the company after a certain period as
per the terms of issue.
 Irredeemable preference shares:
These are not to be purchased back by the company during its lifetime.

Status of Preference Shares, if Articles of
Association are silent
• Preference shares will be presumed to be:
 Cumulative
 Non-Participating
 Irredeemable and
 Non-Convertible.

Deferred Shares
• Deferred shares are those shares on which the payment of
dividend and capital (at the time of winding up of a company)
is made after money is paid in full on preference shares and
equity shares.
• As per the provisions of the COMPANIES ACT,1956, no
public company can issue deferred shares.

Factors to be considered for analysing the
preference shares
• High quality preference shares
• Stability
• Security
• Rights of dividend
• Investment

Characteristics
• Rate of dividend is not fixed. It depends upon
the availability of profits & the discretion of
the Board of the Directors.
 Dividend is paid after payment of dividend on
equity & preference shares.
 At the time of liquidation, capital on these
shares is returned after capital is repaid on
both preference & equity shares.

Real Estate
• Residential House
• Sources of Housing Finance
• Features of Housing Loans
• Guidelines for Buying a Flat
• Commercial Property
• Agricultural Land
• Suburban Land
• Time Share in a Holiday Resort

Commodity market
• A bulk good such as an agricultural product, food,
natural resource or metal that is traded on an
exchange in bulk quantities.
• A commodity is any homogenous item which may be
freely bought and sold. The term typically refers to
products such as coffee, cocoa and soyabeans (soft
commodities) or gold, aluminium and platinum (hard
commodities).

Commodity market
• Commodities typically are bought and sold in
futures markets where producers combine with
manufacturers and speculators to create a
smoothly functioning market.

Module2:Investment Avenues
Finance specialization paper 1
Bangalore university
Investment Analysis and managements

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Session topics
• Investment Avenues
• Bonds and debentures
• Preference shares
• Equity shares
• Real estate
• Commodity markets
• Bank deposits
• Insurance
• Mutual funds
• Foreign exchange
• Money market instruments
• Derivatives-Forward , Futures ,Options , Swaps
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What is a bond?
• Defn: A bond is a tradable instrument that
represents a debt owed to the owner by the
issuer.
• Most commonly, bonds pay interest
periodically (usually semiannually) and then
return the principal at maturity

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A bond certificate

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A bond certificate
•This bond certificate from the Mansfield and Framingham
Railroad Co. (incorporated in Massachusetts) is complete with a
coupon in the lower-left corner.
•Note that the face value of the bond is printed in pink, written,
and also in the graphic in the upper-left of the picture.
•This bond has been canceled as is evidenced by the cancellation
holes over the signatures of the president and secretary (lower-
right) and the “Cancelled” stamp in two locations.
•In the upper-right, you can see that the bond is number 26.
•Finally, note the ornate artwork which is to discourage
counterfeitin

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Advantages of bonds over stocks
• Bonds, while a more conservative investment
than stocks, can offer certain investors some
very attractive features:
– Safety
– Reliable income
– Potential for capital gains
– Diversification (especially for an otherwise all-
equity portfolio)
– Tax advantages

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Safety of bonds
• The safety of bonds derives mainly from two
things:
– Bondholders are in line ahead of both preferred and
common stockholders for payment. Thus, if a firm
falls on hard times, it must first pay its bondholders
while stockholders may see dividends cut.
– In the event that a company skips a payment or
violates covenants of the indenture, the creditors may
force it into bankruptcy to protect the value of their
investment. Stockholders have no such right.

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Reliability of income
• Most bonds are “fixed-income” securities. As such,
they promise a fixed set of interest payments and the
return of the principal at maturity
• Investors can count on receiving their interest
payments in full and on time, except in the event of
severe financial distress. Common stockholders can
never be sure of the exact amount (and sometimes the
exact timing) of dividends
• Bonds that are callable (most corporates and some
Treasuries issued before 1985) do not offer as much
reliability, though it is still far better than stocks. As
interest rates decline, the probability of a call increases

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Potential for capital gains
• Investors who do not hold a bond to maturity may enjoy
capital gains or suffer capital losses:
– When interest rates fall, bond prices rise. Thus an

investor who buys when rates are high, and sells
after rates fall will earn a capital gain. The rate
decrease may be due to general market conditions
or improvement in the company’s creditworthiness

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Potential for capital gains
– When interest rates rise, bond prices fall. Thus an
investor who buys when rates are low, and sells
after rates rise will suffer a capital loss. The rate
increase may be due to general market conditions
or a decrease in the company’s creditworthiness
– All other things being equal, as the bond moves
through time to maturity, the price must move
towards its face value. Thus, bonds purchased at a
discount will rise in price, and those purchased at a
premium will decline in price

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Diversification
• Bonds, when added to an equity portfolio, can
lower risk while lowering returns slightly
(depending on the percentage of the portfolio
allocated to bonds).
• While bond prices may be quite volatile, due
to the stability of the income that they provide
bond total returns tend to have low correlation
with stock returns.
• The following slide shows the effect of adding
bonds to a stock portfolio.

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Tax advantages of bonds
• Interest paid on corporate bonds:
– Firms offering bonds are tax exempt on their

interest expense paid
– The higher the tax savings the greater is the firm’s
earnings
– The value of the firm is enhanced to the extent of
their debt (MM theorem) owing to this tax shield
on interest expense

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Types of Bonds
Pure Discount or Zero-Coupon Bonds
 Pay no coupons prior to maturity.
 Pay the bond’s face value at maturity.
Coupon Bonds
 Pay a stated coupon at periodic intervals prior to
maturity.
 Pay the bond’s face value at maturity.
Perpetual Bonds (Consols)
 No maturity date.
 Pay a stated coupon at periodic intervals.
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Types of Bonds
• Floating rate bonds
• Bonds with call/put option
• Capital indexed bonds
• RBI Relief Bonds
• Public Sector Undertaking Bonds

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Bond Issuers
• Government
• Financial Institutions
• Countries
• Corporations

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Government Bonds
Treasury Bills (Gilts)
 No coupons (zero coupon security)
 Face value paid at maturity
 Maturities up to one year
Treasury Notes
 Coupons paid semiannually
 Maturities from 2-10 years

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Government Bonds
Treasury Bonds
 Coupons paid semiannually
 Maturities over 10 years
 The 30-year bond is called the long bond.

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Government Bonds
• No default risk. Considered to be riskfree.
• Exempt from state and local taxes.
• Sold regularly through a network of primary
dealers.
• Traded regularly in the over-the-counter
market.

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Corporate Bonds
• Secured Bonds (Asset-Backed)

 Secured by real property
 Ownership of the property reverts to the
bondholders upon default.
• Debentures
 General creditors
 Have priority over stockholders, but are
subordinate to secured debt.
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Bond Ratings
Moody’s S&P Quality of Issue
Aaa AAA Highest quality. Very small risk of default.
Aa AA High quality. Small risk of default.
A A High-Medium quality. Strong attributes, but potentially

vulnerable.
Baa BBB Medium quality. Currently adequate, but potentially
unreliable.
Ba BB Some speculative element. Long-run prospects
questionable.
B B Able to pay currently, but at risk of default in the
future.
Caa CCC Poor quality. Clear danger of default .
Ca CC High specullative quality. May be in default.
C C Lowest rated. Poor prospects of repayment.
D - In default.
Fixed income securities
Fixed income securities are investments where
the cash flows are according to a
predetermined amount of interest. paid on a
fixed schedule. Fixed interest rate securities
are those in which the interest payable is fixed
beforehand. Credit quality, yield and maturity
are the key components of fixed securities.

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Basic bond valuation
• The intrinsic value of a bond, like stocks, is
the present value of its future cash flows
• Bonds, however, have much more predictable
cash flows and a finite life
• The cash flows promised by a bond are:
– A series of (usually) constant interest payments
– The return of the face value of the bond at maturity

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Basic bond valuation (cont.)
• The value of a bond is determined by four variables:
– The Coupon Rate – This is the promised annual
rate of interest. It is normally fixed at issuance for
the life of the bond. To determine the annual
interest payment, multiply the coupon rate by the
face value of the bond. Interest is normally paid
semiannually, and the semiannual payment is one-
half the annual total payment
– The Face Value – This is nominally the amount of
the loan to the issuer. It is to be paid back at
maturity
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Basic bond valuation (cont.)
– Term to Maturity – This is the remaining life of
the bond, and is determined by today’s date and
the maturity date. Do not confuse this with the
“original” maturity which was the life of the bond
at issuance
– Yield to Maturity – This is the rate of return that
will be earned on the bond if it is purchased at the
current market price, held to maturity, and if all of
the remaining coupons are reinvested at this same
rate. This is the IRR of the bond
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Basic bond valuation example
• Suppose that you are interested in purchasing a
3-year bond with a 10% semiannual coupon
rate and a face value of Rs 1,000. If your
required return is 7%, what is the intrinsic
value of this bond?
• Here is a timeline showing the cash flows:
1000
50 50 50 50 50 50
0 1 2 3 4 5 6

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Basic bond valuation example (cont.)
• Note that the cash flows of the bond consist of:
– An annuity, the interest payments, paid every six
months. This is calculated as:
CR  FV 0.10  1000
Pmt    50
2 2
– A lump sum which is the return of the face value
of the bond at the end of its life. This payment is
made at the same time as the last interest payment

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Basic bond valuation example (cont.)
• We can find the intrinsic value of these cash flows by finding the present
value of the interest payments and then adding the present value of the face
value:
 1 
 1  6 
 1   0 . 07 
1 
 1  k  N   1   
FV  2   1000
VB  Pmt    50  
 

d
 kd  1  k d 
N
0.07  1  0.07 6
   2  2
   
 
• Note that the first term is the present value of an annuity, and the second is
the present value of a lump sum
• Do the math, and you’ll find that the bond is worth Rs. 1,079.93. Note that
this value must decline until it reaches Rs. 1,000 at maturity

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Bond valuation notes
• A few things of note with regard to the
example:
– The interest is paid semiannually, so we first
calculated the annual interest and the divided it by
two. If interest was paid, say, quarterly, we would
have divided the annual amount by four
– Similarly, we must convert the number of years to
maturity (3) into the total number of periods (6)

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Bond valuation notes
– Finally, we also must adjust your annual required
return (7%) to a semiannual return (3.5%)
– These three variables must always be stated on a
per period basis
– Nearly all bonds (in the U.S.) pay interest more
often than annually. Most often this is
semiannually, but it could also be quarterly or
monthly

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Valuing bonds between coupon dates
• The bond valuation formula just presented has
one major flaw: It only works on a coupon date
• Since coupon dates (interest payment dates)
usually only occur twice per year, chances are (~
99.45%) you’ll buy (or sell) a bond between
coupon dates
• In this case, we must deal with accrued interest,
and the increase in the bond value since the last
coupon date
87
Dr.Triveni P.
(cont.)
• Imagine that we are halfway between coupon dates. We
know how to value the bond as of the previous (or next
even) coupon date, but what about accrued interest?
• Accrued interest is assumed to be earned equally throughout
the period, so that if we bought the bond today, we’d have
to pay the seller one-half of the period’s interest
• Bonds are generally quoted “flat,” that is, without the
accrued interest. So, the total price you’ll pay is the quoted
price plus the accrued interest (unless the bond is in default,
in which case you do not pay accrued interest, but you will
receive the interest if it is ever paid)
88
Dr.Triveni P.
(cont.)
• The procedure for determining the quoted price of
the bonds is:
– Value the bond as of the last payment date
– Take that value forward to the current point in time
This is the total price that you will actually pay
– To get the quoted price, subtract the accrued interest
• We can also start by valuing the bond as of the
next coupon date, and then discount that value for
the fraction of the period remaining
89
Dr.Triveni P.
(cont.)
• Let’s return to our original example (3 years, semiannual
payments of Rs 50, and a required return of 7% per year).
• As of period 0 (today), the bond is worth Rs 1,079.93. As of
next period (with only 5 remaining payments) the bond will be
worth Rs 1,067.73. Note that:
1067.73  1079.931.035  50
1
P1 P0 Interest earned
• So, if we take the period zero value forward one period, you
will get the value of the bond at the next period including the
interest earned over the period
90
Dr.Triveni P.
(cont.)
• Now, suppose that only half of the period has gone by. If we
use the same logic, the total price of the bond (including
accrued interest) is:
1079.931.035
0.5
 1098.66
• Now, to get the quoted price we merely subtract the accrued
interest:
QP  1098.66  25  1073.66
• If you bought the bond, you’d get quoted Rs. 1,073.66 but
you’d also have to pay Rs 25 in accrued interest for a total of
Rs. 1,098.66
91
Dr.Triveni P.

Mba 3rd Sem Finance Notes (Bangalore University)

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Module 1 :Investment Avenues

Finance specialization paper 1

Investment Analysis and managements

Investment Analysis and Management 1

Investment Analysis and Management 2

Investment Analysis and Management 3

Investment Analysis and Management 4

Investment Analysis and Management 5

Investment Analysis and Management 7

Investment Analysis and Management 8

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Investment Analysis and Management 10

Investment Analysis and Management 11

Investment Analysis and Management 12

Investment Analysis and Management 13

Investment Analysis and Management 14

Investment Analysis and Management 15

• To protect themselves against hoaxes, to be able to

Investment Analysis and Management 16

Portfolio manager’s job

Valuation basis Security selection Mkt

Trading costs, Execution

Investment Analysis and Management 17

Investment Analysis and Management 18

Investment Analysis and Management

Investment Analysis and Management

Investment Analysis and Management

Investment Analysis and Management

Investment Analysis and Management

Investment Analysis and Management

Investment Analysis and Management

• Investment has less degree of risk.

Investment Analysis and Management

• The person who indulges in investment

Investment Analysis and Management

Investment Analysis and Management

Investment Analysis and Management

Individual investors/Retail investors

Investment Analysis and Management

Investment Analysis and Management

Investment Analysis and Management

Investment Analysis and Management

Debentures includes debenture stock, bonds and any

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