Theme 40. Finance and the formation of an investment portfolio

Theme 40. Finance and the formation of an investment portfolio

Plan:

1. 
   Concept and essence of investment portfolio.
   
2. 
   Practical use of several methods of analysis of investment portfolio.
   
3. 
   Capital asset pricing model (CAPM).
   
4. 
   Practical use of CAPM method for the analysis of investment portfolio.
   

Keywords: financial assets, investment portfolio, capital asset pricing model (CAPM).


1.Concept and essence of investment portfolio

Many investors work not only with the investments in the real sector of the economy, but with financial sector, including investments in different financial assets. A financial asset is a liquid asset that gets its value from a contractual right or ownership claim. Cash, stocks, bonds, mutual funds, and bank deposits are all are examples of financial assets. Unlike land, property, commodities, or other tangible physical assets, financial assets do not necessarily have inherent physical worth or even a physical form. Rather, their value reflects factors of supply and demand in the marketplace in which they trade, as well as the degree of risk they carry.

Common Types of Financial Assets.

According to the commonly cited definition from the International Financial Reporting Standards (IFRS), financial assets include:

• 
  Cash;
  
• 
  Equity instruments of an entity – for example a share certificate;
  
• 
  A contractual right to receive a financial asset from another entity – known as a receivable;
  
• 
  The contractual right to exchange financial assets or liabilities with another entity under favorable conditions;
  
• 
  A contract that will settle in an entity's own equity instruments.
  

An investment portfolio is a set of financial assets owned by an investor that may include bonds, stocks, currencies, cash and cash equivalents, and commodities. Further, it refers to a group of investments that an investor uses in order to earn a profit while making sure that capital or assets are preserved.