FIN 332 Lecture Notes - Lecture 1: Asset Allocation, Capital Market, Systemic Risk

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26 Jan 2017
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Investment- current commitment of money or other resources in expectation of reaping future benefits. Sacrifice something of value you now to benefit from the sacrifice later. Material wealth of society determined by productive capacity of economy- goods and services created. Productive capacity is a function of real assets (land, buildings, equipment, and knowledge) used to produce goods and services. Financial assets are stocks and bonds that do not contribute to productive capacity of economy- its how people hold their claims on real assets. They are claims to income generated by real assets. We can"t own our own auto plant (real asset) but we can buy shares in honda (financial) Real assets generate net income in the economy. Financial assets define the allocation of income or wealth among investors. Real assets are the net wealth of the economy because financial assets cancel out. National wealth = structures, equipment, inventories of goods, and land.

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