After studying this chapter you will be able to understand: Securities, non marketable securities, marketable securities, forms of marketable securities, indirect investments, securities and risks. | Basic Introduction Securities Lecture: 3 Course code: MBF 702 Outline Securities Non marketable securities Marketable securities Forms of Marketable securities Indirect investments Securities and risks Securities ”A legal contract representing the right to receive future benefits under a stated set of conditions.” The piece of paper (. the share certificate or the bond) defining the property rights is the physical form of the security. The terms security or asset can be used interchangeably. If a distinction is sought between them, it is that the term assets can be applied to both financial and real investments whereas a security is simply a financial asset. For much of the analysis it is asset that is used as the generic term. From an investor’s perspective, the two most crucial characteristics of a security are the return it promises and the risk inherent in the return. An informal description of return is that it is the gain made from an investment and of risk that it is the . | Basic Introduction Securities Lecture: 3 Course code: MBF 702 Outline Securities Non marketable securities Marketable securities Forms of Marketable securities Indirect investments Securities and risks Securities ”A legal contract representing the right to receive future benefits under a stated set of conditions.” The piece of paper (. the share certificate or the bond) defining the property rights is the physical form of the security. The terms security or asset can be used interchangeably. If a distinction is sought between them, it is that the term assets can be applied to both financial and real investments whereas a security is simply a financial asset. For much of the analysis it is asset that is used as the generic term. From an investor’s perspective, the two most crucial characteristics of a security are the return it promises and the risk inherent in the return. An informal description of return is that it is the gain made from an investment and of risk that it is the variability in the return. Securities More precise definitions of these terms and the methods for calculating them will be discussed later. For the present purpose, the return can be defined as the percentage increase in the value of the investment, so Securities The return on a security is the fundamental reason for wishing to hold it. The return is determined by the payments made during the lifetime of the security plus the increase in the security’s value. The importance of risk comes from the fact that the return on most securities (if not all) is not known with certainty when the security is purchased. This is because the future value of security is unknown and its flow of payments may not be certain. The risk of a security is a measure of the size of the variability or uncertainty of its return. It is a fundamental assumption of investment analysis that investors wish to have more return but do not like risk. Therefore to be encouraged to invest in assets with higher risks they .
