Investment ChalenngeInvestment Chalennge

SIMULATION GAMESIMULATION GAME

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Why Do Individuals Invest ?Why Do Individuals Invest ?

By saving money (instead of By saving money (instead of spending spending it), individuals forego it), individuals forego consumption today in return for a consumption today in return for a larger consumption larger consumption tomorrow.tomorrow.

How Do We Measure The Rate How Do We Measure The Rate Of Return On An Investment ?Of Return On An Investment ?

real rate of interestreal rate of interest inflation premiuminflation premium risk premiumrisk premium

Defining an InvestmentDefining an Investment

Any investment involves a current commitment of Any investment involves a current commitment of funds for some period of time in order to derive funds for some period of time in order to derive future payments that will compensate for:future payments that will compensate for: the time the funds are committed (the time the funds are committed (the real rate of returnthe real rate of return)) the expected rate of inflation (the expected rate of inflation (inflation premiuminflation premium)) uncertainty of future flow of funds (uncertainty of future flow of funds (risk premiumrisk premium))

Two-step process:Two-step process: Security analysisSecurity analysis

Necessary to understand security characteristics and Necessary to understand security characteristics and applied to these securities to estimate their price or applied to these securities to estimate their price or valuevalue

Portfolio managementPortfolio management Selected securities viewed as a single unitSelected securities viewed as a single unit How and when should it be revised?How and when should it be revised? How should portfolio performance be measured?How should portfolio performance be measured?

The Investment Decision ProcessThe Investment Decision Process

Uncertainty in Uncertainty in ex postex post returns in decision process returns in decision process Future unknown and must be estimatedFuture unknown and must be estimated

Foreign financial assetsForeign financial assets – opportunity to enhance – opportunity to enhance return and/or reduce riskreturn and/or reduce risk

Investors must now cope with a changed investing Investors must now cope with a changed investing environmentenvironment

Internet changes investments environmentInternet changes investments environment Institutional investors are importantInstitutional investors are important How efficient are financial markets in processing How efficient are financial markets in processing

new information?new information?

Factors Affecting the ProcessFactors Affecting the Process

Main issues:Main issues: The accountability of the Board of Directors and The accountability of the Board of Directors and

ManagementManagement A re-examination of accounting and auditing A re-examination of accounting and auditing

practicespractices Management compensation arrangements such as Management compensation arrangements such as

executive stock option plansexecutive stock option plans Disclosure requirementsDisclosure requirements The effectiveness of existing regulatory bodiesThe effectiveness of existing regulatory bodies

Corporate GovernanceCorporate Governance

Individuals who are interested in the Individuals who are interested in the investment area should consider seeking a investment area should consider seeking a CFA designationCFA designation Level I emphasizes tools and inputsLevel I emphasizes tools and inputs Level II emphasizes asset valuationLevel II emphasizes asset valuation Level III emphasizes portfolio managementLevel III emphasizes portfolio management

For more information: For more information: www.cfainstitute.orgwww.cfainstitute.org

Appendix 1-A: The Chartered Appendix 1-A: The Chartered Financial AnalystFinancial Analyst®® (CFA (CFA®®))

ProgramProgram

Canadian Securities Institute (CSI)Canadian Securities Institute (CSI) The CSI offers the Canadian Securities Course (CSC), The CSI offers the Canadian Securities Course (CSC),

which is a mandatory requirement for individuals who wish which is a mandatory requirement for individuals who wish to become licensed to sell financial securities in Canada and to become licensed to sell financial securities in Canada and to register to sell mutual fundsto register to sell mutual funds

CFA InstituteCFA Institute (formerly Association for Investment (formerly Association for Investment Management and Research (AIMR))Management and Research (AIMR)) The CFA institute administers the Chartered Financial The CFA institute administers the Chartered Financial

Analyst Analyst ®® curriculum and examination program curriculum and examination program

Appendix 1-B:Appendix 1-B:Professional Educational Professional Educational

AlternativesAlternatives

Financial plannersFinancial planners The The Financial Planners Standards Council (FPSC)Financial Planners Standards Council (FPSC)

developed a set of minimum standards regarding developed a set of minimum standards regarding education, experience, and ethical and moral education, experience, and ethical and moral conduct for financial planners conduct for financial planners

Appendix 1-B:Appendix 1-B:Professional Educational Professional Educational

AlternativesAlternatives