1

knowledge

The real rate of return on investment equals to the nominal rate of return minus the inflation rate.

application

Calculate the real rate of return with the inflation rate and the nominal rate given.

2

knowledge

Federal, provincial, and local taxes on investment vary with the kinds of investment. As a result, different kinds of investment bring different rate of return after tax.

application

Calculate the stocks and bonds’ real rate of return and the rate of return after tax with the tax rate and the inflation rate given.

3

knowledge

The fees of purchasing, selling and holding financial assets reduce the rate of return on investment.

application

Learn and compare the management costs of several funds. Suppose the market performance remains the same, estimate the gap between the total amount of money each fund earns in ten years.

4

knowledge

The buyers and sellers in the financial market determine the prices of financial assets and thus have an influence on the rate of return on assets.

application

If buyers think the risks of bonds increase, what will happen to the bonds’ prices and their rates of return?

5

knowledge

Investments with higher risks often have lower prices, hence a higher rate of return.

application

Explain why blue chips have lower expected rates of return than the newly developed internet companies.

6

knowledge

Short-term investments may have lower rates of return than long-term one.

application

Suppose every bond has the same rate of interest, explain how the market determines the rates of return on short-term bonds and long-term ones?

7

knowledge

Investing in different kinds of financial assets can reduce the risks of investment.

application

Suppose there are two investors. Both have two companies on a beach. The main businesses of one are sunblock and umbrella, while the other sells nothing but sunblock. Compare the risks these two people face. Explain why an investment consultant asks his or her clients to make a portfolio including stocks, bonds and estates.

8

knowledge

The financial market adjusts itself to financial news. The prices of financial assets are a reflection of the market condition.

application

Learn how the prices of financial investments change when there comes news on the future profitability of a company or profession.

9

knowledge

The prices of financial assets are influenced by interest rates, financial conditions both home and abroad, and changes in currency policies and fiscal policies.

application

Give examples of the change in the value of financial assets when interest rates change. Understand why their values increase when interest rates decrease. Explain why changes in economic growth change the value of investors’ stocks.

10

knowledge

Investors should realize their tendencies to make bad choices. For example, they may refuse to sell the assets that have already bring them a loss just because the loss overweighs the benefit. They may prefer to invest in familiar financial assets such as stocks issued by their employers, or local stocks rather than international ones.

application

Learn why investors sell the stocks that have earned them money and hold the ones that bring them a loss. Explain why this kind of behavior is meaningless. Learn cases where investors prefer investments they are familiar with and understand that such decisions are often irrational.

11

knowledge

People have different willingness to take risks. The willingness depends on various factors including their characteristics, incomes and family condition.

application

Understand why retired people have a quite different portfolio from young and single people.

12

knowledge

When individuals fail to fully understand the essence of alternative investments or entering the competitive financial market, the government shows its economic effects.

application

Understand why it is important for individuals to learn the sales and profits of the companies they invest in.

13

knowledge

US Securities and Exchange Commission (SEC), Federal Reserve Board of Governors and other governmental institutions regulate the financial market.

application

Do research on US Securities and Exchange Commission or Federal Reserve Board of Governors and understand their influence on the financial market.