Page 67 - DMGT515_PERSONAL_FINANCIAL_PLANNING

Personal Financial Planning Rupesh Roshan Singh, Lovely Professional University

Notes Unit 4: Measuring Investment Return

CONTENTS
Objectives
Introduction

4.1 Risk and Return Trade-off
4.2 Types of Investment
4.3 Expected Return of an Asset

4.4 Risk Free and Risky Assets
4.4.1 Risk Free Assets
4.4.2 Risky Assets
4.5 Long-term and Short-term Capital Gains
4.6 Sources of Credit and Credit Alternatives

4.6.1 Credit Information Bureaus
4.7 Summary
4.8 Keywords

4.9 Review Questions
4.10 Further Readings

Objectives

After studying this unit, you will be able to:
Explain the meaning of investment;

State the different types of investments;
Explain the concept of risk and return;
Determine the expected return of an asset;

Describe the risk free and risky assets.
Introduction

Investment involves making of a sacrifice in the present with the hope of deriving future
benefits. Investment has many meanings and facets. The two most important features of an
investment are current sacrifice and future benefit. We can identify a variety of activities which
display the two features of investment. For example, a portfolio manager buys 10,000 shares of
ITC Ltd. for his mutual fund; your relative may have subscribed to the 6-year Post Office Monthly
Income Scheme. A corporate firm may spend ` 5 crores for expansion programmers; a middle-
aged man with a family decides to spend ` 10 lakhs to buy an apartment in a city and so on. All
these constitute investment activities because they involve current sacrifice of consumption and
hope of future gain. Perhaps, an investment in an apartment for the purpose of living in it may
involve, partially at least, certain current consumption but because the family will continue to

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