Chapter 3: Selecting Investments in a Global Market
CHAPTER 3
SELECTING INVESTMENTS IN A GLOBAL MARKET
The Case For Global Investments
Relative Size of U.S. Financial Markets
Rates of Return on U.S. and Foreign Securities Global Bond Market Returns Global Equity Market Returns
Risk Diversification Individual Country Risk and Return Risk of Combined Country Investments Global Bond Portfolio Risk Global Equity Portfolio Risk Global Competition Summary on Global Investing
Global Investment Choices
Fixed Income Investments.
Capital Market Instruments. U.S. Treasury securities U.S. Government Agency Securities Municipal Bonds Corporate Bonds Indenture Provisions Preferred Stock
International Bond Investing Eurobond Yankee Bonds International Domestic Bonds
Bond Ratings
Equity Instruments American Depository Receipts (ADR) Direct purchase International Mutual Funds
Derivatives
Managed Investments Investment Companies Hedge Funds Venture Capital Pools REITS
Historical Risk/Returns on Alternative Investments
Stocks, Bonds, and T-Bills (Ibbotson-Sinquefield Study)
World Portfolio Performance.
CHAPTER 3
Answers to Questions
1. The major advantage of investing in common stocks is that generally an investor would earn a higher rate of return than on corporate bonds. Also, while the return on bonds is pre-specified and fixed, the return on common stocks can be substantially higher if the investor can pick a "winner" --i.e., if the company's performance turns out to be better than current market expectations. The main disadvantage of common stock ownership is the higher risk. While the income on bonds is certain (except in the extreme case of bankruptcy), the return on stocks will vary depending upon the future performance of the company and could well be negative.
2. The four factors are: (1) Limiting oneself to
SELECTING INVESTMENTS IN A GLOBAL MARKET
The Case For Global Investments
Relative Size of U.S. Financial Markets
Rates of Return on U.S. and Foreign Securities Global Bond Market Returns Global Equity Market Returns
Risk Diversification Individual Country Risk and Return Risk of Combined Country Investments Global Bond Portfolio Risk Global Equity Portfolio Risk Global Competition Summary on Global Investing
Global Investment Choices
Fixed Income Investments.
Capital Market Instruments. U.S. Treasury securities U.S. Government Agency Securities Municipal Bonds Corporate Bonds Indenture Provisions Preferred Stock
International Bond Investing Eurobond Yankee Bonds International Domestic Bonds
Bond Ratings
Equity Instruments American Depository Receipts (ADR) Direct purchase International Mutual Funds
Derivatives
Managed Investments Investment Companies Hedge Funds Venture Capital Pools REITS
Historical Risk/Returns on Alternative Investments
Stocks, Bonds, and T-Bills (Ibbotson-Sinquefield Study)
World Portfolio Performance.
CHAPTER 3
Answers to Questions
1. The major advantage of investing in common stocks is that generally an investor would earn a higher rate of return than on corporate bonds. Also, while the return on bonds is pre-specified and fixed, the return on common stocks can be substantially higher if the investor can pick a "winner" --i.e., if the company's performance turns out to be better than current market expectations. The main disadvantage of common stock ownership is the higher risk. While the income on bonds is certain (except in the extreme case of bankruptcy), the return on stocks will vary depending upon the future performance of the company and could well be negative.
2. The four factors are: (1) Limiting oneself to