Cellular Essay (ameritech) :: essays research papers

The orange is the home digital service area and the yellow is analog service area. Ameritech also offers free long distance all over the U.S.A. With a special package deal they have going right now. For sixty-five dollars a month you get 325 minutes per month. For their Chicago land service area it depends on which plan you pick, because the local rate per minute could either be .25 cents or .29 cents per minute for local calls that went over your minutes you received for free already. The price per minute also changes depending on if you are in the peak or off peak time slots. Peak hours are from 6 a.m. to 10 p.m. Monday through Friday. Off peak times are from 10:01 p.m. to 5:59 a.m. Monday through Friday. Saturday and Sunday are all day off peak and some holidays. Long distance runs from .25 cents per minute to .35 cents per minute. Depending on the distance it varies. If you leave your service area and enter another then roaming charges will be also added. If you decide to go wit h a cellular phone they have package deals that include a cell phone for a thirty five-dollar activation fee. They offer several packages to meet everyone’s needs. You may also upgrade to a better phone, but then you must purchase that phone.   Ã‚  Ã‚  Ã‚  Ã‚  I contacted Ameritech and they told me that because I wasn’t a business that they were unable to release that information. They then told me that they would get a hold of one of their managers and maybe they could give me this information. They took my name and number and I never received anymore information. I told them this was for a school project, but that didn’t matter.   Ã‚  Ã‚  Ã‚  Ã‚  The PBX I chose was Meridian1 option 11c. This is a powerful PBX that comes in a small package. It supports 30 to 400 lines. Some other features are digital telephones, in building wireless communications, voice messaging, call center, PC-based system management, Ethernet connection, remote connection, keycode software activation, and multimedia applications. This PBX can be easily upgraded to new capabilities. Some of the programs that this PBX can run are Computer Telephony Integration (CTI), Customer Controlled Routing (CCR), and Integrated Voice Response (IVR).   Ã‚  Ã‚  Ã‚  Ã‚  Dual-tone multifrequency dial (DTMF) is a keypad containing 12 to 16 buttons. These are arranged in columns and rows. When the buttons are pushed they send two tones to the central exchange.

Drawing on your understanding of the theories of motivation Essay

Drawing on your understanding of the theories of motivation and using examples where appropriate, critically assess the role of money as a motivator? The basic outlook on motivation is that needs equal behaviour which in turn equals satisfaction and vice versa. I.e. you have certain needs or wants, and this causes you to do certain things (behaviour), which satisfy those needs (satisfaction), and this can then change where needs/wants are primary. ‘The underlying idea is that all human beings are motivated to undertake certain actions – including purchasing goods and services and going out to work – by certain needs. Various needs come into play as motivators.'(Abraham Maslow.) Abraham Maslow suggested that we are motivated to satisfy our needs hierarchically: first is the desire to satisfy physiological needs, then the desire for security, the desire for companionship and a sense of belonging, the desire for self-esteem, and the desire for self-actualization, doing what one most wants and is best suited to do. As people’s lower or basic needs are met, broader more in depth issues motivate them. A person needs to feel as if his/her needs have been met on previous level(s) before moving upward. A person will not be motivated by love until he/she has had both his/her physiological and security needs met. For example babies’ needs are as basic as they come. All they wants is food, sleep, and a clean nappy, and not necessarily in that order. As they continue to get their survival needs met, they eventually request that their safety needs be addressed. At this time, their motivations are based purely on basic, survival needs. In all five cases of Maslow’s model, money to some extent plays a vital role in satisfying such needs one way or another. Money is often talked about as the ultimate motivator. It is the basic reason why most of us go to work everyday. It provides us with numerous freedoms. It allows us a variety of choices. If one has no money, or insufficient funds for basic needs, then one will do almost anything to get some. Money is a motivator at this basic level. However, as one begins to have enough to satisfy basic needs, it has less and less effect. People will generally choose to do things they like, prefer or which meets their values and aspirations, rather than seek money for its own sake. Of course, if they are in, or join a reference group whose members have more money than they do, then money may enter the motivational equation again. Equally, if they see other people, especially those within their own company or profession, earning more than they do for the same work (relative deprivation), then they may well be motivated to either complain about money or indeed seek a similar job elsewhere that pays better. However, people in general seem to reach a balance between money and effort, between money and the calls of family and interests. For instance, commission schemes are supposed to motivate increased effort in sales people. The truth of the matter is that for most sales people, they do not. The sales person works as hard as they need in order to get to a level of income that they require. At this point they are said to have â€Å"satisficed† and their needs and income are in balance. Offering more money will not necessarily increase effort beyond this point. Successful organizations use motivational techniques in order for its workforce to be highly efficient and effective. However on the contrary don’t essentially offer monetary rewards in every situation. There are drawbacks of using cash as the only motivator. Though it can motivate employees to be a good workforce, it can make them dishonest. Moreover, there are other ways to motivate people at very low cost, which give the same or even better results as using money. As mentioned above, money can buy almost everything people want, but only almost. There are many things that can not be traded for money. Due to these weak points, money is not as good motivator as it is viewed. First and foremost, money could lead to bad or unlawful performance. Money can really motivate people because, as it is well documented, money can buy satisfaction. Theoretically, workforces will perform better as they know that they will get more money from bonus or a raise. The problem is that in the real world, they do not perform â€Å"better† but perform to â€Å"look better† in their bosses’ eyes. For example, some might try to give an image of high workload by sitting in front of the computer and typing all the time, though they have nothing to type. In some case, they might stagger around the office, especially in front of the bosses’ rooms, so that they will be seen as busy and diligent. The worst case scenario is that they will try to serve their bosses the best, not the company. These are absolutely not the results the company expected from the motivation program. Moreover, if the company implements this program for some time, it may become company culture: money-oriented. Employees will only be concerned about how much money they make and not motivated by the job itself. They might excel as that can generate more earning but they will do something to get more money also. In a company that uses a stock option policy, managers get stocks as their bonus, and this policy can lead to illegal performance and inappropriate actions as Ivan F. Boesky found out to his disadvantage. He was accused of insider trading that led to huge personal profits and eventually a $100 million fine. This scandal was described as one of the worst on Wall Street history, and unsettled public confidence with the fear that stock trading may be fixed. ‘Money is often used for motivating, but it also addresses itself to human greed, which dulls the conscience and may lead to unethical and illegal behaviour.’ (Weihrich and Koontz, 1988) Secondly, companies can use other low cost motivators to motivate their workforces to perform better. â€Å"A personal organiser, complete with a leather case, is one of the gifts being offered to British Telecom employees as part of BT’s â€Å"Living Our Values† initiative. BT is using non-cash benefits to reward exemplary behaviour. The BT initiative is an example of an employer using gift items to enable managers to show gratitude to employees for such things as continuous improvement and teamwork.† (Rue and Byars, 1977) If the company use bonus’s as motivation, it will face a problem if it does not have good strategies to execute it with. For example, if the company gives a bonus every month, this bonus will do no good as a motivator. The reason for this is that if the company gives a bonus to employees every month, employees will feel that the bonus is what they must have as part of their salary, not as a reward for good performance and also the company will not make much profit and in the long run will eventually get rid of some staff. Therefore, if the company really wants employees to work better and better, it has to raise the bonus again and again. In addition to this, there are many utensils that can motivate workforces better than money. In fact, studies have found that non-monetary compensation is an even more vital factor many people. According to Hagemann, ‘the motivation factors ranked with importance by Japanese, American and German companies in the first, second and third places were clearer strategic directives, more information about work and more participation in the job while money was ranked in the ninth place.’ Money can be better motivator as it can indicate the status of the person. This statement is true but not for all situations. There are many people who gain respect from other people because of their good and honest habit though they earn little money. In the meantime, some who are rich but have bad reputation might be considered as dirty people or of a very low status. Nonetheless, there is another argument that an increasing salary is an indicator of success. It might be true but there are many things that can also show success such as more participation and more responsibility, for instance the Prime Minister of Great Britain is not that greatly paid when comparing him with CEO’s of major corporations, lawyers, barristers, footballers†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. The list goes on, yet the PM’s position is one of the most important and prestigious position in the country. Thirdly, money can not satisfy all needs of people. In reference to Maslow’s theory on motivation ‘money can satisfy only the needs at the lower level.’ According to Plunkett and Attner, â€Å"the physical needs can be satisfied by increasing pay, safety needs can be satisfied by reassuring that jobs will not be eliminated.† For social needs, there are many ways to cope with such as letting the new employee interact in recreational activities of the firm. In these levels of needs, money can be best used only at the lowest level. For example, money cannot buy the sense of belonging in the society, social need. There are many people who are extremely wealthy but can’t interact on a professional and social level with their fellow workmates in the organization well and have to quit their jobs. Some people do not want more money as they are satisfied with their current status or they are more concerned with other things more. For example, some wealthy and successful CEO’s whose needs are in the top levels like self-esteem or self-actualization may not necessarily be motivated by money. To motivate these people, the company might try to make them feel that the job is challenging or make them realise that this is another goal of their lives. The company might provide more opportunities in other fields of the job and send them to some training course to make their job more challenging. Changing the structure of the job is another way to motivate workforces, as it will make them feel that they have more challenge than their routine work. As seen, money is not a good motivator for everybody, as each employee will have dissimilar needs in the hierarchy. Although money is not always seen as a reliable motivator by a number of critics, it does possess its advantages in terms of it leads people towards a goal, it gives them direction and clarification. If there are no bonuses or low wages, where would the motivation be for a worker to work to his/her best ability? If there is a limited reward for your efforts then where will the incentive be to do well? Such questions are always raised in board meetings and meetings between employees and management. Management tend to use money as armour in their toolbox and release their ‘weapon of extra incentive’ when required. On the whole money is not always top employee priority although it is important, because ‘the money that you bring home buys the bread.’ People are also motivated by variety of items and using money as the only motivator is not as good a strategy as it should be. It can motivate people to perform better but only as the external motivator. People do not feel that they really want to work because of â€Å"intrinsic interest in a task† (Kohn, 1998) but they work just for money. This can lead to inefficiency and illusion of performance and also cause corruption and illegality in work. In fact there are many motivators that can bring about the same or even better result as money. Furthermore, using these motivators can reduce the cost of the company also. Last but not least, although money can buy many things, it cannot buy satisfaction and not all employees’ needs can be satisfied by money. Therefore, monetary motivators can not motivate everybody. As seen in this essay, motivating people by money can create some disadvantages and money is not the ‘be all and end all of motivation,’ so the company has to be very wary when using it.

Need For Investment And Various Alternatives For Investment Finance Essay - Free Essay Example

Sample details Pages: 14 Words: 4186 Downloads: 6 Date added: 2017/06/26 Category Finance Essay Type Narrative essay Did you like this example? Investment Management is a broad term that encompasses employing, monitoring and evaluating the performance of assets held in various financial instruments. It deals with financial instruments and the major entities involved include financial institutions, insurance firms, banks, individuals, etc. The markets these days being highly volatile, investment management is of prime importance generating returns on assets by combating the risk involved due to surrounding factors. Don’t waste time! Our writers will create an original "Need For Investment And Various Alternatives For Investment Finance Essay" essay for you Create order The paper basically focuses on the need for investment, various alternatives for investment, timing of investment and the investment process involved. Moreover, the paper also describes the major investment avenues (options) available to investors and the factors and approach that will be taken into consideration while making the investment decision. The paper also throws light on stock market fluctuations and corresponding investment behaviour. It covers the concept of time value of money and margin of safety. The author has also made an effort to describe the capital asset pricing model and arbitrage pricing theory. Futures and options have also been briefly described. Introduction to Investment Management Investment Management involves employing money in financial instruments in the present with an expectation of positive rate of return in the future. The financial instruments may be securities, bonds, assets, etc. Investors such as banks, companies, insurance firms or individuals seek to invest money in order to achieve their financial goals. The money required for investment usually comes from savings of an individual which he uses to get returns in the future. In the modern day scenario, there exist a lot of financial products which provide individuals with a variety of options to entities. Moreover, considering the volatility of markets and frequently changing regulations governing the various financial instruments, investment management is certainly the need of the hour. The money invested needs to be spread across various instruments in order to gain maximum return from the investment. Investment managers indulge into discretionary or advisory management to help the inve stors accomplish their objectives. In advisory investment management, the investment manager suggests alternatives regarding where and when to invest and when to sell the concerned financial instruments. In discretionary investment management, the investment manager has the authority to manage the financial instruments without the approval by the investor. Before investing, the investor has to find answers to few questions in order to come up with a plan for investment. These questions typically are: Why to Invest? What to Invest? Where to Invest? When to Invest? How to Invest? These questions have been answered with reference to investment management as under: Why to Invest? An investor would probably invest to generate an additional source of income to fund his future requirements. Now, when we talk about investment, a persons income majorly involves savings and consumption. Savings are deposited in savings account in bank and are liable to receive 4-5% on interest per annum. Considering the rising levels of inflation, these savings lose value over a period of time. So, the individual switches to fixed deposits which provides him 7-8% per annum of interest rate. So, fixed deposit provides the individual with an acceptable rate of return with minimum or zero potential risk. When we talk about other instruments like shares or securities, it involves potentially high amount of risk due to fluctuating markets. So, the rational behaviour of the investor might not always work. What to Invest? The investor would typically invest his/her savings and financial reserves. Where to Invest? Investment alternatives are spread over a wide range and mainly include: Investment in Bank Deposits Investment in Real Estate Investment in Currencies (Foreign Exchange) Investment in Gold Investment in Equities Investment in Commodities and Derivatives Investment in Government Bonds The investor should typically invest by diversifying his investment among various alternatives to maximize rate of return on his assets with minimum potential exposure to risk. When to Invest? It involves deciding upon the time during which to buy and sell the concerned financial instruments keeping the return on investment in mind. Moreover, the investors residence should be owned and not mortgaged. The investor must be earning sufficiently to meet the demand for current expenses. Moreover, the investor must also be able to take out time and demonstrate control over his emotions for successful management of his investment. How to Invest? Answering this question will enable the individual to define an investment system and an overall investment strategy with rules and regulations for the targeted investment. Investment Management Process The investment management process consists of 5 steps that mainly include: Setting the Investment Objective Establishing Investment Policy Selecting the Portfolio Strategy Selecting the Assets Measuring and Evaluating Performance Setting the Investment Objective Investment objectives may vary from entity to entity be it banks, financial institutions, insurance firms or individuals. For an individual, it may to maximize return on investment with a minimum risk. On the contrary for a bank, it may be minimum interest spread over their cost of funds. Investment objective can be specified in terms of Income, Investment Capital Growth, Stability of investment and Implementation. Before setting the investment objective, SWOT analysis is done to get a better view of individuals current financial situation. It could be done as shown below in the diagram: Moreover in setting the investment objective, a tentative risk tolerance review is also conducted in order to assess the risk associated with each of the alternatives. Establishing the Investment Policy It involves defining a policy that helps in allocation of assets among equities, debt, fixed income securities, real estate and foreign currencies. While defining the policy, the constraints of the investment environment as well as the investor need to be kept in mind. Environmental Constraints include government rules and regulations as well as working of the market place. Individual Constraints include financial capability, risk profile, time available, and understanding of the investment environment. Defining the investment policy for the individual will involve coming up with a strategy and tactics for investment which are in sync with the available alternatives and the operating investment environment. Selecting the Portfolio Strategy Again the portfolio strategy has to be in accordance with the investment objective and the established investment policy and guidelines. It mainly involves an active or a passive strategy. Active strategies have a higher expectation when it comes to the factors influencing the performance of various financial instruments. Passive strategies have minimum expectation input. Active portfolio strategy also takes into consideration the purchase of stocks and subsequent holding period to maximize returns. It also takes into account the spread of portfolio over several sectors and industries and checks the investment worthiness of the current stock. Moreover, the investor also needs to have an investment philosophy depending on the forces affecting the stock market and movement of stock prices. Selecting the Assets This would involve defining the portfolio in a way that risk commensurate with returns. The available alternatives in terms of asset classes involve equity, fixed income securities, real estate, debt instruments, currencies, art objects, rare stamps, etc. The investor has to manage his portfolio from time to time and balance all of the above instruments in accordance with the objectives. Measuring and Evaluating Performance This involves analysing the performance of the portfolio against a realistic benchmark. An investor or manager would mainly consider the risk-return profile while evaluating the performance and this evaluation will provide him with feedback regarding the improvements that can be made in the quality of portfolio. Investment Environment Introduction Investment environment is of prime importance as it helps the investor know about the demand supply gap that exists in case of various commodities and services. Each country has its own economy and several markets enable interaction among these economies. The market basically consists of: The Regulator (E.g. SEBI in case of India) The Trading Platform and its system (E.g. National Stock Exchange) Brokers (E.g. Broking Firms) Participants/ Investors (E.g. Financial Institutions, Mutual Funds, etc.) A particular economy may be affected by events taking place in various parts of the world and so the overall investment environment has a major role to play in investment management. Investment Avenues There are a large number of alternatives available as far as the financial instruments for investment are concerned. However, these could be categorized into 4 major categories: Financial Securities: These include equity shares, convertible debentures, preference shares, gilt-edged securities, public sector bonds, savings certificate, money market securities, etc. These are freely tradable and negotiable. Non-securitized Financial Securities: These include bank deposits, post office deposits, provident fund schemes, life insurance, etc. and are neither tradable, transferrable nor negotiable. Mutual Fund Schemes: These are mainly equity or debt oriented schemes which are used when an investor does not want to invest in the market. Real Assets: These include physical investments typically in real estate, gold and silver, stamps, art objects, etc. Investment Attributes The major attributes to be considered when deciding upon an investment avenue include: Rate of Return: It comprises of annual income and capital gain or loss. It is given by Rate of Return= Annual Income+ (Ending Price-Beginning Price)/Beginning Price Risk: It refers to variance in the rate of return expected. Put in other words, it is the deviation of actual outcome of investment from expected value. Various techniques employed to measure risk include variance, standard deviation, etc. Marketability: Here the instrument must have a low transaction cost and must be easily tradable. Moreover, price change between 2 transactions is expected to be very low. Thus, an instrument must be highly marketable. Taxes: This attribute considers whether the investment avenue provides tax benefits. Tax benefits occur mainly in the form of Initial tax benefits, Continuing tax benefits and Terminal tax benefits. Convenience: It involves the degree and ease with which an inve stment can be managed. Comparison of Investment Avenues Investment Decision Making Approaches Following approaches have been considered when it comes to identifying investment strategies that can be implemented to gain maximum returns from various financial instruments: Fundamental Approach It deals with the intrinsic value of the instrument which is deeply affected factors related to overall economy, industry and company. Psychological Approach This approach is mainly driven by greed and fear which represent optimistic and pessimistic behaviour of investors respectively. Stock prices are driven majorly by emotions and hence the decision regarding investment is based accordingly. Here the investors use internal market data and analyze it through tools like bar charts, moving average analysis, etc. to understand the price movements. Academic Approach This approach reflects the rational behaviour of the stock markets. It relies on the flow of information over time and hence makes the stock markets much more reliable and efficient. The major equation describing this approach is as under: Current Market Price=Intrinsic Value Eclectic Approach This approach involves all the 3 approaches as mentioned above. Here standards and benchmarks are established through fundamental analysis. Demand-supply gap and investor mood are tracked through technical analysis. It stresses on a positive correlation between risk and return and denies the fact that market is speculative or perfect. Common Errors in Investment Management Following are some of the basic errors that investors make due to a lack in perception regarding the existing investment environment: Unrealistic goals and expectations Ambiguous Investment Policy Overconfidence of the Investor Unnecessary switching of stocks Averaging tendency and inclination for cheap stock Over/Under Diversification Attractiveness of known companies Bad attitude towards profit or losses Investor v/s. Speculator Investor Speculator Long Holding Period typically atleast a year Very short holding period of, say, few days or months Usually is moderate when it comes to risk taking Assumes to high risk taking Moderate Returns provide less risk High returns on high risk exposure Decision based on proper analysis Decision based on market psychology Active Asset Allocation Introduction For any investor, there exists a base amount with which he/she starts investing in various financial instruments. This base amount is known as the asset base. For instance one has savings worth INR 5 lacs and inheritance worth INR 25 lacs. Then, if the investor plans to invest this, then his total asset base would be INR 30 lacs. Now, asset allocation involves percentage distribution of various financial instruments in which the investor wishes his/her asset base to be divided among. Here the financial instruments stocks, bonds and cash. Here again there will be a trade off between performance of the portfolio and aversion to risk. Thus, asset allocation involves monitoring and evaluating investment plan to decide upon the optimal allocation of our asset base to various financial instruments in order to meet the performance criteria set for the portfolio. Asset Allocation Classes Basically there are 3 classes of asset allocation as mentioned under: Long-Term Asset Allocation It involves a passive process wherein risk and performance are balanced. Here analysis is done in terms of stability and performance about the asset mix which best meets the long-term investment plan. Active Asset Allocation It involves an active process wherein the strategy is usually buy low, sell high. Here performance of the portfolio is improved through mixing of assets in response to changing market opportunities. It is a dynamic process and hence the investor needs to be aware of the market fluctuations. Portfolio Insurance It involves an active strategy of buy high, sell low. This is usually implemented for shielding the portfolio against adverse market action and hence preventing the performance from degrading. Asset Allocation Process Asset allocation process is based on assumptions which state the role of securities market and related returns associated with various asset classes. The first assumption stating that securities market reflects the rate of returns available from various asset classes. The second assumption being that of a normal relationship among these returns. The third assumption being the fact that securities market correct disequilibrium conditions when they occur. Again markets deviating from the equilibrium have better prospects for profits. So, the allocation process should be a step-by-step approach after evaluation of risk return profile of each of the asset class considered. Portfolio Upgrade and the Use of Futures A portfolio basically consists of 2 categories of stocks namely the buy candidates, which are very attractive and hold candidates, which are mildly attractive. Portfolio upgrade is required whenever a need arises to shift from one asset class to another. In an investment decision to move from stocks to cash, an investor may sell hold candidates having potentially lower expected returns. Futures are used whenever there is a need to accomplish a change in the existing asset mix of portfolio. Futures reduce the transaction cost and hence are an attractive tool. However, with futures we need to maintain a cash reserve in the portfolio in order to provide for margins involved in the futures trade. Some of the advantages of futures include: Low Transaction Cost High Liquidity Fast Execution Daily trades possible Potential of Favourable Mispricing However, recording all transactions may pose a disadvantage to the use of futures. Investment Management and Trading in the Stock Market Introduction Stock Market trading involves buying and selling a quoted stock in a manner that generates profit for the investor. Stock market behaviour is volatile and at every step it may differ. Research findings show that a step is 6.25% of base price. So, if base price of a stock is INR 1000, then one step is INR 62.5. Phases in the Stock Market: Bull Phase: In this phase the stock prices are consistently rising. Equities traded in stock market at least taking 2 steps forward with 1 step back. Bear Phase: In this phase there is consistent fall in the stock prices. Equities trade in the stock market at least take 2 steps backward with 1 step forward. Consolidation Phase: In this phase equilibrium is reached and stocks traded take 1 step forward for every 1 step backward. Depending on the available information, participants tend to drive the stock prices up or down. Distribution Phase: In this phase prices are at their yearly highs and so strong investors sell to weak investors and after the selling is done, prices again move down. Determining Intrinsic Value of Stock Intrinsic value of a stock is determined through following steps: Calculate the Earnings Per Share of the stock (EPS is based on assumptions about revenue and cost behaviour. Expected EPS is ought to give an idea about the profit generating ability of the company) Calculate price earning multiplier (Reflects investors willingness to pay and markets valuation of companys stock) Identify Value Anchor and Value Range (Projected EPS * Suitable P/E Ratio) Margin of Safety Margin of Safety plays quite a crucial role when it comes to transactions of various financial instruments. The default strategy of buying low and selling high in itself ensures a margin of safety for the investors. However, it is associated with the profits that the enterprise is making. Opportunities for margin of safety arise during bear market conditions. However, the investor has to use technical analysis for making his buy or sell decisions and timing also plays an essential part in these decisions. Consider a stock of, say, XYZ Ltd. priced at INR 200(Base Price). Now, price level below INR 200 means that stock is under-valued and thus it provides the investor with a margin of safety. Now, if the price rises to INR 200 or above, a rational investor would be a seller. Time Value of Money Time Value of Money refers to exchange of money at different point of time. The time gap between inflows and outflows in an investment leads to different current values associated with cash flows at different points in time. There are four primary reasons for the fact that money in future is worth less than what it is worth today. These are: Rising Rate of Inflation Opportunity cost of Lost Earnings Uncertainty associated with future Human Preference to consume the goods now Compounding refers to situations where a current value is being converted to equivalent future value for comparison to another future value. Discounting on the other hand involves moving back in time to convert cash flow to be received in future to its equivalent current value. The concepts of compounding and discounting are widely used in comparison of various investment avenues and the risk associated with each of them. Time Value of Money enables the investor in estimating the amount of money that he needs to save in order to meet interest obligation in future. It also helps in identifying a loan amount an investor can take considering the ability to pay the monthly instalments. Investment Management and Inflation Inflation refers to a gradual increase in the level of prices and hence an increase in the supply of money. Although high inflation and rising stock prices is not a good sign for the investors, most investors still consider investing in the stocks, as expected revenues and earnings are expected to grow at the rate of rise in inflation. However, the investor would be paying more for less as there may be no real increase in value of assets. Stock Market Investment Rules Make investments in larger companies with P/E ratio 10 or below and invest in top 2-3 companies in each of the industry Invest in sunrise industries and keep P/E ratio and EPS in mind. High P/E Ratio means high investor confidence and expected rise in companys earnings in the near future. Watch out for low EPS Time your buys and sells High Returns can be earned from high priced stocks with reasonable price-earnings ratio Sell when P/E ratio shoots up to unrealistic levels or after a steep rise in stock prices Stock Market Investment Strategies Following points need to be taken into consideration when deciding upon an investment strategy in stock market: Company considered is market leader in its industry and is growing at a rapid pace. Diversify in order to ensure low risk and a margin of safety (Invest in companies in fast growing sectors of economy) Sell stocks only in certain specified conditions Advantages: Focus on Initial Selection, Savings on transaction costs, High returns from capital appreciation Stocks can be sold to en-cash profit or loss or when P/E ratio crosses 40 or when there is a sustained rise in stocks for a period of 1 year. Do not sell in order to earn short-term gains based on speculations Diversify over time and focus on long-term value creation Risk and Return Higher Rate of Returns means high amount of risk involved. Equity returns are mainly influenced by 5 factors as mentioned under: Unanticipated changes in default risk Unanticipated changes in term structure of interest rates Unanticipated changes in inflation rate Residual market risk and Unanticipated changes in long-run growth rates of profit The 4 types of risk involved include Business Risk, Inflation Risk, Interest Rate Risk, and Market Risk. Here the correlation of securitys return in a diversified portfolio determined its risk. Moreover, risk associated with a portfolio is not a linear function of standard deviation of risk of each individual security. The risk can be measured by standard deviation method is identified to have 2 components namely Non-Diversifiable Risk (Effect cannot be avoided) and Diversifiable Risk (Avoidable and unique to individual security). Capital Asset Pricing Model Assumptions of Capital Market Theory Investors base their investment decisions based on risk-return investments Purchase and sale of stocks can be done in infinitely divisible units Investors can short sell any amount of stocks without any limit Purchase and sell of stock by single investor cannot affect the price of that stock No transaction costs Absence of income tax considerations Consider an investor lending at a rate Rf=0.06(FD rate) which represents a risk free investment. If he places part of his funds at this riskless rate and part in other riskier securities, then he could generate portfolios along a line. Expected return would be given by equation Rp= X*Rm + (1-X)*Rf Rp=expected return on portfolio X=percentage of funds in risky portfolio Rm=expected return on risky assets Now, SDp= X* SDm SDp= expected standard deviation of the portfolio SDm=expected standard deviation of the risky assets If X is percentage of investment capital in risky assets, then if, X=1; Full Risky Portfolio X=1; Part invested in risky portfolio X=1; Implies that investor has borrowed funds to augment investment capital under his charge The Arbitrage Pricing Theory According to arbitrage theory, the returns on a stock vary depending on a number of expected as well as unexpected events that occur during the time for which investor holds his/her portfolio. According to this model, systemic factors have a larger impact on the performance and these factors pose major risk to the portfolio. In arbitrage pricing theory, the actual return R on any security or portfolio may be given by R= E+ b*f+ e where, E= Expected return on a given security or portfolio b=sensitivity of security to changes in systemic factors f=actual return on the systemic factors e=returns on unsystemic factors Here the major economic factors that can be considered include inflation, changes in levels of industrial production, changes in risk premiums, changes in interest rates, etc. Market Efficiency It describes the operational characteristics of market and is of 2 types mainly: Internally Efficient: Cheap Transactions, Brokerage, commissions and other charges included Externally Efficient: Stock prices reflect all available information 3 forms of market efficiency include: Weak: -Price fully reflects pricing and trading history of concerned security Semi-Strong: Price fully reflects all public information, including price and trading history Strong: Price fully reflects all relevant information, irrespective of the fact whether it is publicly available or not Role of Options and Futures Options and futures enable better investment risk management as they help the managers identify the risk patterns and behaviours. An option is a contract in which the writer of the option grants the buyer of the option the right to purchase or sell the writer an underlying security at a specified price. A future is a contract between a buyer and a seller, in which buyer agrees to take delivery and seller agrees to give delivery of some specific product at the end of a designated period of time. Options and futures can be used to create instruments that offer a higher return than a cash market instrument. They can also be used to adjust the risk exposure or alter the stock/bond mix of a portfolio. Future contracts can be used to reduce the transaction cost. Conclusion When we think of gaining returns on our savings and reserves, then we need to invest in various financial instruments. However, each of the instruments has a potential risk associated with it and so investment management targets on returns adjusting against risk in order to generate profit for the investor. The investment has to be made at the right time and the portfolio, which comprises of various instruments, needs to be monitored in order to ensure its stability and performance against market uncertainty.