Investments: Analysis and Management, 12th Edition

chapter 2

Investment Alternatives

Continuing our scenario from Chapter 1 wherein you inherit $1 million dollars from a relative, with the stipulation that you must invest it under the general supervision of a trustee, let's consider our investing opportunities. You know generally about stocks and bonds, but you are not really sure about the specific details of each. For example, you do not know what a BBB rating on a bond indicates. Furthermore, you are unaware of zero coupon bonds, you have never heard the term securitization, and when your broker suggests that you consider ADRs for international exposure, you are really at a loss. For sure, you are not ready to explain to your trustee why you might consider derivative securities for your portfolio. It is clear than an investor in today's world should be prepared to deal with these issues, because they, and similar issues, will come up as soon as you undertake any type of investing program.

Fortunately, you can learn to evaluate your investing opportunities, both current and prospective, by learning some basics about the fundamental types of securities as outlined in this chapter.

Chapter 2 explains the most important investment alternatives available to investors, ranging from money market securities to capital market securities—primarily, bonds and stocks—to derivative securities. The emphasis is on the basic features of these securities, providing the reader with the knowledge needed to understand the investment opportunities ...