CHAPTER 3 : INVESTMENT ANALYSIS

Tajuk 3 – Analisis Pelaburan

Analisis Fundamental

Definisi – Kajian mengenai nilai saham menggunakan data-data asas seperti perolehan, jualan dan lain-lain.

Asas ini menyatakan mana-mana sekuriti mempunyai nilai intrinsik . Dalam keseimbangan harga pasaran saham menggambarkan nilai intrinsic saham. Seorang pelabur yang mempunyai pengetahuan fundamental yang baik boleh membuat keuntungan dari perbezaan harga pasaran dengan nilai intrinsic dengan bertindak cepat sebelum harga pasaran diselaraskan dengan maklumat yang betul. Ahli Fundamental percaya bahawa data mereka dinilai dengan betul yang didapati dari penyata kewangan syarikat.

Analisis Fundamental melibatkan 3 aspek:-

i. Analisis Ekonomi
ii. Analisis Industri
iii. Analisis Syarikat.

Analisis Ekonomi

Analisis ini mengkaji ekonomi secara umum dengan memberi penekanan kepada pembolehubah yang mempengaruhi ekonomi sesebuah negara dalam tempoh tertentu . Sebagai contoh Keluaran Negara Kasar yang mengukur kadar pertuimbuhan ekonomi akan diambil kira dalam menentukan kedudukan dan prospek ekonomi Negara tersebut.

Dasar kewangan dan dasar fiscal kerajaan perlu diteliti kerana ia memberi kesan kepada bursa saham. Contohnya dasar kewangan yang ketat akan menyekat aliran pasaran modal dan menyebabkan kadar faedah naik. Sebaliknya dasar kewangan yang longgar akan membebaskan aliran pasaran modal dan menyebabkan kadar faedah turun.

Dasar fiskal adalah berkaitan dengan system percukaian kerajaan yang merupakan sumber hasil terbesar. Melalui dasar ini , kerajaan boleh merangsang pertumbuhan ekonomi dengan memberikan kredit pelaburan dan mengurangkan kadar cukai. Kerajaan juga boleh melembapkan pertumbuhan ekonomi dengan membekukan kredit pelaburan dan menaikkan kadar cukai.

Pembolehubah tersebut boleh mempengaruhi agregat ekonomi dan seterusnya membawa kesan yang ketara terhadap indusri dan syarikat. Dengan itu sebarang perkembangan yang dijangka akan berlaku boleh menjejaskan pergerakan harga saham di bursa saham.

Analisis Industri

Analisis industri dibuat selepas kajian ekonomi dilakukan. Analisis ini dikenali sebagai analisis sector kerana ia mengkaji sector-sektor ekonomi dalam tempoh tertentu. Dalam analisis industri memerlukan penganalis mengetahui pusingan hidup industri. Penganalisis perlu mengenalpasti tempoh mana syarikat berada.


Pusingan Hidup Industri

Terdapat 4 pringkat dalam pusingan hidup industri.

i. Peringkat Perintis (inovasi)

Pada peringkat ini berlaku pertumbuhan permintaan yang pesat terutamanya di kalangan masyarakat bersifat inovatif.Dengan itu tahap jualan terus meningkat dengan kadar pertumbuhan yang tinggi. Pada masa ini juga wujudnya peluang-peluang yang menarik syarikat luar untuk bersaing. Syarikat yang lemah akan terkeluar di peringkat awal lagi. Walau bagaimanapun penganalisis masih mengalami masalah untuk mengenalpasti syarikat yang mampu terus hidup dalam industri.



ii. Peringkat Perkembangan

Semua syarikat dalam industri yang telah mencapai peringkat ini menunjukkan kemampuannya untuk terus hidup. Pada peringkat ini tahap jualan adalah tinggi dengan kadar pertumbuhan yang sederhana.Pada masa ini industri memperbaiki mutu keluaran dan cuba menurunkan harga. Keadaan pasaran lebih stabil dan kukuh seta dapat menarik lebih ramai pelabur ke dalam industri.

iii. Peringkat Kestabilan/Kematangan

Peringkat ini menunjukkan tahap jualan yang masih tinggi tetapi kadar pertumbuhan yang lebih rendah. Semua keluaran lebih standard dan kurang inovatif di kalangan pengeluar. Pada masa ini juga terdapat banyak pesaing di pasaran dan menyebabkan kos adalah stabil atau hampir sama.

iv. Peringkat Kejatuhan

Pada peringkat ini kebanyakan syarikat mengalami kejatuhan tahap jualan yang menyebabkan perolehan syarikat juga jatuh dan boleh menyebabkan kerugian. Kebanyakan syarikat keluar dari pasaran. Bagaimanapun syarikat yang masih berada di pasaran adalah syarikat yang mempunyai pelanggan setia.


Implikasi peringkat industri kepada pelabur

i. Peringkat Perintis

Pada peringkat ini menawarkan potensi pulangan pelaburan yang tinggi tetapi risikonya juga tinggi. Keadaan ini disebabkan oleh kemungkinan syarikat gagal meneruskan kehidupannya adalah tinggi. Pelabur seharusnya mengelakkan dari melabur dalamsyarikat pada peringkat ini melainkan pelabur yang sanggup menanggung risiko yang tinggi.

ii. Peringkat Perkembangan
Pada peringkat ini syarikat mampu membayar dividen yang tinggi dengan kadar pertumbuhan yang sederhana. Peringkat ini merupakan masa terbaik untuk melabur kerana potensi syarikat untuk terus hidup telah dibuktikan dan risiko pelaburan telah dikurangkan.

iii. Peringkat Kematangan
Pada masa syarikat masih dapat mengekalkan keuntungan dan mampu membayar dividen yang tinggi tetapi kadar pertumbuhan yang lebih rendah. Peringkat ini juga menawarkan peluang pelaburan yang baik keran pelabur masih dijamin mendapat pulangan yang positif.

iv. Peringkat kejatuhan

Pada peringkat ini pelabur harus mengelakkan dari melabur kerana kemungkinan besar pelabur mengalami kerugian. Pelabur perlu mengenalpasti syarikat-syarikat yang berada pada peringkat ini.

Analisis Industri dari aspek analisis pusingan perniagaan.

i. Growth industries (Industri Pertumbuhan)

Industri yang mempunyai pertumbuhan perolehan dijangka yang melebihi purata semua industri secara ketara.

ii. Defensive industries (Industri Bertahan )

Industri yang kurang terjejas akibat kemelesetan atau kegawatan ekonomi atau lain-lain faktor yang menjejaskan ekonomi.

iii. Cyclical industry (industri berkitar)

Industri yang paling terjejas akibat turun naik pusingan perniagaan. Sudah menjadi kelaziman prestasi perniagaan dalam industri mengikut keadaan pusingan atau kitaran ekonomi secaraa keseluruhan. Bila ekonomi berkembang kebanyakan perniagaan menunjukkan prestasi yang baik. Begitu juga sebaliknya apabila ekonomi meleset kebanyak perniagaan juga menghadapi kemerosotan dalam prestasinya.

iv. Interest –sensitive industries (Industri yang sensitive terhadap kadar faedah).

Industri yang sensitive terhadap perubahan yang dijangka ke atas kadar faedah. Prestasi industri bergantung kepad perubahan kadar faedah di pasaran kerana perolehan syarikat amat berkait rapat dengan perubahan kadar faedah. Contohnya syarikat kewangan, perbankan dan syarikat-syarikat pelaburan.
v. Qualitative aspects of industry analysis.
Dari aspek kualitatif penilaian dibuat ke atas prestasi sejarah syarikat yang lepas. Perbandingan boleh dibuat ke atas perolehan yang lepas untuk tempoh beberapa tahun yang boleh memberikan tentang gambaran keupayaan syarikat mengendalikan perniagaan.

Kajian boleh juga dibuat ke atas kemampuan syarikat untuk bersaing di pasaran. Analisis perlu dibuat dari segi mencari kekuatan syarikat berbanding dengan pesaing yang lain seterusnya menentukan keduudukan syarikat di pasaran.

Pelaksanaan peraturan dan tindakan kerajaan perlu diambilkira bagi melihat kesannya dengan industri terlibat. Dalam banyak keadaan perubahan dalam dasar dan peraturan kerajaan boleh menjejaskan prestasi perolehan syarikat.

Satu lagi faktor ialah perubahan dalam struktur ekonomi Negara. Apabila kerajaan membuat perubahan dasar dalam perubahan struktur ekonomi misalnya dari ekonomi berasaskan pertanian kepada ekonomi berasaskan perindustrian telah banyak memberikan impak samada positi atau negative kepada banyak industri.

vi. Penilaian ke atas prospek masa hadapan industri.

Prospek masa hadapan adalah penting untuk dijangka oleh pelabur. Ini disebabkan perolehan pelabur bergantung kepada prestasi syarikat dimasa hadapan. Keputusan pelabur pada hari ini dibuat berasaskan kepada jangkaan perolehan di masa hadapan. Dengan itu amat penting pelanur membuat unjuran atau jangkaan ke atas prospek masa hadapan syarikat atau industri.


Analisis Syarikat

Setelah mengkaji kedudukan ekonomi dan industri analisis perlu dibuat ke atas syarikat yang dipilih yang dijangka akan menunjukkan prestasi yang terbaik. Analisis syarikat dibuat dengan terperinci dari aspek dalaman dan luaran. Aspek dalaman perlu mengkaji struktur organisasi sebuah syarikat khususnya lembaga pengarah, bidang utama perniagaan, anak-anak syarikat, syarikat-syarikat sekutu serta rekod perniagaan.

Rekod perniagaan hendaklah dilihat dengan membuat perbandingan dari tahun ke tahun atau antara syarikat dengan syarikat yang lain.Analisis secara kuantitatif dibuat menggunakan analisis nisbah.

Objektif akhir dalam analisis syrikat ialah mencari nilai intrinsic saham syarikat. Nilai intrinsic ini akan dibandingkan dengan nilai pasaran saham sebagai asas membuat keputusan pelaburan.

Dalam menentukan nilai intrinsic maklumat diperolehi dari penyata kewangan syarikat yang membekalkan data kewangan utama syarikat. Kunci Kira-kira pula menunjukkan kedudukan asset dan liability syarikat. Penyata pendapatan pula dapat menilai prestasi pengurusan dan menganggar keberuntungan syarikat pada masa hadapan. Maklumat seperti EPS amat berguna dan merupakan komponen utama dalam analisis sekuriti.

Bagaimanapun terdapat permasalahan dalam angka perolehan yang dilaporkan. Ini disebabkan angka EPS yang ditunjukkan bukansatu angka yang sedia untuk dibandingkan antara syarikat. Dalam penyediaan penyata kewangan terdapat pilihan dari segi amalan prinsip perakaunan yang diterima umum. Setiap kaedah yang digunakan akan memberikan perolehan yang berbeza dan akhirnya memberikan nilai EPS yang berbeza.



Terdapat 2 perkara penting yang mesti dipertimbangkan dalam proses analisis fundamental.

i. EPS ialah kunci kepada perubahan harga masa hadapan saham. Saham-saham yang mempunyai perubahan perolehan yang besar berkemungkinan besar mengalami perubahan harga yang besar samada positif atau negative.
ii. Kadar pertumbuhan perolehan tidak mudah untuk diramal. Pelabur tidak boleh menggunakan pertumbuhan EPS yang lepas untuk meramal pertumbuhan di masa hadapan.

Analisis Teknikal

Definisi

Analisis Teknikal merupakan analisis pasaran agregat dan saham individu dengan menggunakan data asas pasaran yang telah diterbitkan di pasaran seperti harga-harga saham , indeks pasaran, bilangan/volum saham yang diurusniagakan, petunjuk-petunjuk pasaran/teknikal dan sebagainya.

Objektif Analisis Teknikal untuk melihat pergerakan harga berasaskan masa bagi meramal pergerakan harga jangkapendek. Ramalan ini berasaskan kajian pasaran ke atas saham melalui analisis data harga dan volumsaham. Ahli-ahli teknikal lebih menekankan perubahan harga berbanding paras harga. Mereka beranggapan asdalah sukar untuk menganggar nilai intrinsic sesuatu saham dan tidak mungkin untuk mendapat analisis maklumat secara konsisten.

Teori dan Andaian

i. Harga pasaran saham hanya ditentukan oleh interaksi antara kuasa permintaan dan penawaran.
ii. Kuasa penawaran dan permintaan dipengaruhi oleh pelbagai faktor sentiment pasaran samada rasional atau tidak.
iii. Harga-harga saham berkecenderungan untuk bergerak dalam suatu arah yang boleh ditentukan.
iv. Haluan perubahan disebabkan oleh peralihan interaksi antara kuasa penawaran dan permintaan akhirnya boleh dikesan dalam reaksi pasaran itu sendiri.

Teori Dow

Teori Dow telah dicipta oleh Charles H. Dow pada tahun 1921. Ia merumuskan bahawa harga saham di pasaran secara keseluruhan tidak bergerak secara rambang tetapi dipengaruhi oleh tiga kitaran dan pergerakan harga iaitu:-

i. Pergerakan Primer

Pergerakan harga berkitar selama beberapa tahun iaitu seawall-awalnya setahun dan selewat-lewatnya tiga tahun. Ia melibatkan tempoh jangka masa yang panjang . Biasanya perkembangan arah meningkat adalah lebih lama dari perkembangan arah menurun. Pergerakan ke atas menunjukkan pasaran ‘bull’ dan pergerakan arah ke bawah menunjukkan pasaran ‘bear’

ii. Pergerakan sekunder

Pergerakan sekunder berkitar selama beberapa bulan iaitu seawall-awalnya enam minggu dan selewat-lewatnya enam bulan. Ia bertindak sebagai kuasa yang memperbaiki sisihan yang berlaku dalam kitaran primer. Ia muncul kerana berlaku pembetulan dalam kitaran primer ekoran dari kejatuhan harga semasa pasaran menjulang atau kenaikan harga semasa pasaran menjunam.

iii. Pergerakan Kecil/Harian

Pergerakan harian adalah berlaku secara random atau rawak. Ia berkitar selama beberapa jam hingga beberapa hari sahaja. Kesan kitaran tidak begitu dirasai oleh pelabur kerana jangkamasa yang cukup singkat dan tiada kepenmtingan kepada ahli-ahli teknikal dalam membuat ramalan.

Penunjuk Pasaran

i. The Advance Decline Line (Garis Turun Naik)

Garis Turun Naik ialah merupakan perbezaan bersih antara bilangan saham-saham yang mengalami kenaikan harga dengan bilangan saham-saham yang mengalami penurunan harga iaitu dengan menolakkan bilangan saham yang naik dengan bilangan saham yang turun harga. Pengiraan ini dibuat menggunakan data secara kumulatif atau terkumpul. Hasil yang diperolehi akan diplot bagi membentuk garisan secara harian atau mingguan. Garisan ini dibandingkan dengan garisan purata saham untuk menunjukkan samada pergerakan penunjuk pasaran ini juga dialami oleh pasaran.

Biasanya kedua-dua garisan bergerak dalam arah yang sama. Jika kedua-duanya menaik menunjukkan pasaran adalah kuat manakala jika sebaliknya menunjukkan pasaran adalah lemah.

Jika garis turun naik menaik manakala garisan purata menurun maka garisan purata akan naik dengan sendirinya mengikut arah garis turun naik. Jika garisan purata menaik manakala garis turun naik menurun maka garisan purata akan menurun dan diikuti dengan pasaran akan menurun .

ii. Purata Bergerak (Moving Average)

Purata Bergerak dikira secara penentuan bilangan harga penutup seperti purata untuk 200 hari, 30 minggu dan sebagainya. Pengiraan yang baru dibuat dengan menambah 1 hari dan menggugurkan 1 hari yang pertama hingga seterusnya. Pengiraan ini dibuat berulang-ulang dan angka-angka diplot bagi membentuk garisan purata bergerak. Purata bergerak dibandingkan dengan harga pasaran untuk membuat keputusan samada beli atau jual.

iii. Harga Tinggi rendah Yang Baru (New Highs And Lows)

Penunjuk pasaran ini dapat menunjukkan gambaran samada pasaran bullish atau bearish . Pasaran dianggap bullish jika terdapat bilangan saham yang menunjukkan harga tertinggi yang baru secara signifikan selama 52 minggu. Sebaliknya pasaran adalah lemah sekiranya hanya terdapat beberapa saham sahaja yang menunjukkan harga tertinggi yang baru.

iv. Volum Urusniaga

Penunjuk pasaran ini juga dapat menunjukkan gambaran pasaran bullish atau bearish. Volum urusniaga yang tinggi secara keseluruhannya menunjukkan pasaran adalah bullish. Kedaan ini bertambah kuat jika diikuti dengan peningkatan harga.

v. Kecairan Dana Amanah Mutual

Formula yang digunakan ialah (tunai + asset hampir tunai) / (Jumlah asset)

Kedaan pasaran mempunyai perhubungan secara langsung dengan nisbah kecairan ini. Semakin tinggi nisbah kecairan maka pasaran adalah bullish. Nisbah kecairan yang tinggi menunjukkan potensi kuasa beli yang tinggi dan kesannya harga saham akan naik. Sebaliknya jika nisbah kecairan adalah rendah potensi kuasa bel;I juga rendah dan kesannya pasaran kan jatuh.

vi. Nisbah Kedudukan Pandak (Short Interest Ratio)

Formula yang digunakan ialah (Jumlah saham yang dijual singkat)/(Purata jualan harian)

Mengikut pendapat ahli teknikal jika nisbah kedudukan pandak adalah tinggi menunjukkan pasaran adalah bullish. Ini disebabkan bilangan saham yang dijual singkat adalah tinggi dan kesannya belian semula saham adalah tinggi. Keadaan ini menunjukkan permintaan ke atas saham adalah tinggi dan menyebabkan harga saham akan naik dan pasaran menjadi bullish.

bagaimanapun pendapat ini bertentangan dengan pendapat pelabur iaitu jualan singkat berlaku kerana pelabur meramal harga saham akan jatuh.

vii. Pendapat Berlawanan (Contrary Opinion)

Pendapat berlawanan merupakan tindakan pelabur yang bertentangan arah tindakan kebanyakan pelabur-pelabur. Misalnya jika terdapat ramai pelabur yang membeli saham A, seorang pelabur seharunya bertindak untuk menjual saham tersebut. Sebaliknya jika terdapat ramai pelabur menjual saham A, seorang pelabur seharusnya bertindak untuk membeli saham tersebut.

Carta

i. Carta Bar

Carta bar disediakan dengan memplot harga saham harian berbanding masa. Setiap hari pergerakan harga saham dilukis secara menegak di mana bahagian atas menunjukkan harga tertinggi,; bahagian bawah menunjukkan harga terendah manakala satu garis mendatar yang ditandakan menunjukkan harga penutup. Bahagian bawah carta bar menunjukkan volum jualan setiap hari. Ahli Teknikal menggunakan carta bar untuk melihat pola carta dan digunakan bagi mengunjurkan pergerakan harga dimasa hadapan.

ii. Carta poin dan Figur

Carta ini disediakan dengan memplot harga-harga saham yang mengalami perubahan harga yang signifikan. Volum urusniaga tidak ditunjukkan dalam carta. Garis mendatar menunjukkan masa tetapi masa mengikut calendar tidak penting. Simbol ‘X’ dan ‘O’ digunakan di atas carta. Tanda ‘X’ menunjukkan pergerakan harga ke atas. Tanda ‘O’ menunjukkan pergerakan harga ke bawah. Setiap tanda ‘X’ atau ‘O’ mewakili nilai RM 1, RM 2 , RM 5 dan sebagainya bergantung kepada nilai perubahan harga saham berkenaan. Tanda ‘X’ dan ‘O’ hanya direkod bila pergerakan harga pada jumlah tertentu.

iii. Kekuatan Relatif

Kekuatan relative merupakan nisbah harga saham dengan indeks pasaran atau industri atau nisbah harga saham dibandingkan dengan purata harga saham berkenaan. Nisbah ini diplot berbanding dengan masa. Garisan ini menunjukkan kekuatan saham berbanding dengan asas yang dipilih seperti industri, pasaran dan sebagainya.

Hipotesis Pasaran Cekap

3.8.1 Definisi

Hipotesis Pasaran Cekap ialah pasaran dimana harga-harga sekuriti digambarkan sepenuhnya oleh semua maklumat yang diketahui dengan cepat dan tepat.Ia merupakan kunci kepada penentuan harga-harga saham di pasaran.

3.8.2 Keadaan –Keadaan Yang Mewujudkan Pasaran Cekap

i. Terdapat ramai pelabur yang rasional serta bertujuan memaksimumkan untung danbertindak secara aktif dalam pasaran. Ini bererti tindakan seorang pelabur dalam padsaran tidak boleh mempengaruhi harga saham di pasaran.

ii. Maklumat boleh diperolehi secara percuma, didapati secara meluas dan serentak. Ini bermakna tidak ada kos bagi mendapatkan maklumat . Begitu juga maklumat diperolehi dengan mudah tanpa ada sebarang sekatan atau syarat yang menyukarkan seseorang mendapatkan maklumat. Maklumat seharusnya diterima oleh semua pelabur tanpa ada perbezaan masa iaitu maklumat diperolehi pada mwsa yang sama oleh semua pelabur.

iii. Maklumat dijanakan secara rawak dimana pengumuman dibuat secara bebas. Ini bermakna semua pengumuman yang dibuat oleh syarikat hendaklah dilakukan apabila ia perlu tanpa ada kaitan dengan pengumuman oleh syarikat-syarikat lain. Contohnya sekiranya pada masa tertentu syarikat menunjukkan prestasi yang baik atau meningkat maka pengumuman mengenai peningkatan prestasi tersebut hendaklah dibuat .
iv. Pelabur betindak dengan cepat dan sepenuhnya terhadap maklumat baru yang masuk di pasaran dan menyebabkan harga saham diselaraskan dengan cepat selari dengan maklumat baru.

Jenis-Jenis Maklumat

Maklumat adalah kunci dalam penentuan harga saham. Fama (1970) membahagikan maklumat kepada 3 jenis iaitu :-

i. Maklumat Masa Lepas

Ini adalah maklumat yang relevan kepada penilaian saham dengan menganalisis data harga pasaran lepas.

ii. Maklumat Awam

Ini adalah maklumat mengenai sesuatu syarikat, industri dan ekonomi dubia yang boleh diperolehi melalui pengumuman awam.

iii. Maklumat Dalaman

Ini adalah maklumat yang hamya dimiliki oleh segelintir individu yang mempunyai kedudukan dalam sesebuah syarikat.

Bentuk-Bentuk Pasaran Cekap

i. Bentuk Lemah

Ia menyatakan harga-harga saham pada masa kini telah mencerminkan semua maklumat harga saham yang lepas.

ii. Bentuk Separa Kuat

Ia menyatakan bahawa harga-harga saham menggambarkan semua maklumat yang telah wujud atau diketahui umum . Maklumat ini termasuk harga-harga saham, laporan-laporan perakaunan , data ekonomi, pengumuman perolehan syarikat dan lain-lain maklumat yang relevan kepada pelabur dalam penilaian sebuah syarikat.

iii. Bentuk Kuat

Ia menyatakan bahawa harga-harga saham menggambarkan semua maklumat samada yang telah diumumkan atau masih belum diumumkan. Ini bermakna maklumat yang masih belum diumumkan juga boleh diserap oleh pasaran seperti yang ditunjukkan oleh harga pasaran saham.

CHAPTER2 : RISKS AND RETURN

Topic 2 – Risk and Return
2.1 The Components Of return

i. Yield – The periodic cash flows (or income) on the investment either interest or dividends. The issuer makes the payments in cash to the holder of the asset.
ii. Capital gain (loss) – The appreciation or depreciation in the price of the asset . i.e. the change in price on a security over some period of time.

Total Return = yield + capital gain. – A security’s total return consists of the sum of two components, yield and price change (capital gain). The price change can be negative. The yield cannot be negative.

Example:-

A bond purchased at par and held to maturity provides a stream of income in the form of interest payments. A bond purchased for RM 800 and held to maturity provides both a yield (income and a price change).

The purchase of a non-dividend paying stock that is sold months later produces either a capital gain or capital loss.

2.2 Realised Return and Expected Return

The measurement of actual (historical) returns is necessary for investors to assess how well they have done or how well investment managers have done on their behalf.

1. Realised Return – Actual return on an investment for some previous period of time. Return that was or could have been earned.

Example:-

A deposit of RM 100 in a bank of 1st January 2001 at a stated annual interest 6% was worth RM 106.00 one year later. The realized return for the year is 6.00/100.00 = 6%
2. Expected Return – The estimated return from an asset that investors anticipate (expect) they will earn over some future period. It is subject to uncertainty and may or may not occur. Investors should be willing to purchase a particular asset if the expected return is adequate.
3. Total return – Percentage measure relating all cash flows on a security for a given time period to its purchase price. Total return = (cash payments received + price changes over the period)/(price at which the asset is purchased).

TR = [CFt + (Pe – Pb)]/ Pb = (CFt + PC ) / Pb


Where
CFt = cash flows during the measurement period t
Pe = price at the end of period t or sale price.
Pb = purchase price of the asset or price at the beginning of the period.
PC = Change in price during the period or Pe – Pb.

Total return concept is valuable as a measure of return because it is all inclusive, measuring the total return per dollar of original investment. It facilitates the comparison of asset returns over a specified period.

4. Relative Return or Holding period Return (HPR) – The total return for an investment for a given time period stated on the basis of 1.0. The return relative will always greater than zero i.e. eliminating negative numbers.

Return relative = (CFt + Pe) / Pb or Total return + 1.

Calculate the total return and return relative for the following examples.

Example 1
Assume the purchase of a 10% coupon Treasury Bond at a price of RM 960, held one year and sold for RM 1020.

TR = [100 + (1020 – 960)] / 960 = (100 + 60 ) / 960
= 0.1667 @ 16.67 %

RR = (100 + 1020) / 960 = 1.1667

Example 2
1000 shares of ABC Bhd are purchased at RM 30 per share and sold one year later at RM 26 per share. A dividend of RM 2 per share is paid.

TR = [2 + (26 – 30)] / 30 = (2 +(-4) / 30
= -0.0667 @ -6.67%

RR = (2 + 26 ) / 30 = 0.9333

Example 3
Assume the purchase of warrants of ABC Bhd at RM 3 each, a holding period of six months and the sale at RM 3.75 each.

TR = [0 + (3.75 – 3.00)] / 3.00 = 0.75 / 3.00
= 0.25 @ 25%
RR = 3.75 / 3.00 = 1.25
TR = RR – 1 or Holding Period Yield (HPY)
Annual HPR = HPR 1/n
where n = number of years the investment is held.
Example 4
You bought Malayan banking Bhd shares at RM 20.00 per share in year 1 and received A dividend of 15 sen. You than sold the shares in year 2 at RM 25.00 per share.

HPR = (0.15 + 25.00) / 20.00 = 1.2575

HPY = HPR – 1
= 1.2575 – 1 = 0.2575 @ 25.75%

Example 5
An investor purchased Malaysia Airline System Bhd shares at RM 6.00 in year 1 and sold them at RM 10.00 in year 2. assuming that he received a dividend of 7 sen in year 1 and 8 sen in year 2. What is the annual HPR.

HPR = [(Dividend of year 1 + year 2 ) + (share price in year 2)] / cost of investment
= [(0.07 + 0.08) + 10] / 6
= 1.69

Annual HPR = (1.69) 1/n
= (1.69) ½
= 1.3
Annual HPY = 1.3 – 1 = 0.3
= 30 %

5. Arithmetic Mean – As the simple average of all HPYs.

Arithmetic mean = (sum of annual holding period yields ) / (no. of years during
which the investment was held).
= ∑ HPY / n

6. Geometric Mean – It measures the ‘true’ average rate of return over multiple periods. It indicates the compound annual rate of return based on the ending value of the investment versus its beginning value. It is defined as the nth root of the product resulting from multiplying a series of returns together.
Geometric Mean = [(1 + r1) (1 + r2) …(1 + rn)] 1/n – 1 @
Geometric Mean = [ (1 + HPY 1)(1 + HPY2) … (1 + HPY n)] 1/n – 1
= [(HPR 1)(HPR2) …..(HPRn)] 1/n – 1
HPR = Holding period return
n = number of years

* The arithmetic mean return is a good indication of the expected rate of return for an investment during an individual year.
The Geometric Mean return is generally considered to be a superior measure of long-term mean rate of return.
Investors are usually concerned with the long-term performance of their investments.

Example 6
Consider an investment in Berjaya Group Bhd with the following data :

year Beginning Value
RM Ending value
RM HPR HPY = (HPR -1)
1 1.00 1.50 1.50 0.50
2 1.50 2.00 1.33 0.33
3 2.00 1.60 0.8 -0.20
Assuming no dividend income during the holding period.
HPR 1 = 1.50/ 1.00 = 1.50
HPR 2 = 2.00 / 1.50 = 1.33
HPR 3 = 1.60 / 2.00 = 0.80

Arithmetic mean = ∑ HPY / n
= (0.5 + 0.33 – 0.2 ) / 3
= 21 %

Geometric Mean = [(HPR 1)(HPR 2) (HPR 3)] 1/n – 1
= [(1.50) (1.33) (0.8)] 1/3 – 1
= [1.6] 1/3 – 1
= 1.17 -1
= 17%

Example 7

Use the above example with the following data.
Year Beginning Value
RM Ending Value
RM HPR HPY = ( HPR -1)
1 1.00 2.00 2.00 1.00
2 2.00 1.00 0.50 (0.50)
Assuming no dividend income is paid during the holding period of the investment.
HPR 1 = 2.00/1.00 = 2.00 HPY 1 = 2 -1 = 1
HPR 2 = 1.00 / 2.00 = 0.5 HPY 2 = 0.50 – 1 = (0.50)

Arithmetic mean = [ 1.00 + (0.50)] / 2
= 0.25
= 25%

Geometric mean = [(2.00) (0.50)] ½ - 1
= [1.00] ½ - 1
= 1.00 – 1
= 0%
• The arithmetic mean rate of return gives 25% return when there is actually no increase in the value of share price.
• Geometric mean has accurately indicated that there is no change in the investment value.

HOLDING PERIOD RETURN
Investors tend to hold their investment in assets for a period of time. Some may hold the
investments for a shorter period like three months or six months, while others may hold them
for a longer period like two years or five years. The total return of their investment for holding
them for a certain time period is called the holding period return. This holding period return
can be computed as follows:
HPR = Ct +(Ending price –Purchase price )
Purchase price
Example 1
You purchased 500 shares of Sime Darby Bhd. at RM5.80 per share and held the shares for
two years. During this period, you received dividends of RM0.15 per share and then sold the
shares for RM6.20 per share. The holding period is two years and the holding period return
can be computed as follows:



Therefore: HPR = Income + Price Difference
Purchase price
Example 2
You purchased 1,000 shares of IGB Bhd. at RM1.50 per share and held the shares for one
month. During this period, you did not receive any dividends but the price has now gone up
to RM1.60 per share. If you sell the shares, your holding period return would be:



From Example 1 and Example 2, it can be seen that the holding period can differ two years in
Example 1 and one month in Example 2 depending on the investor’s decision as to when to
sell off their shares. Since the holding period may differ, it is difficult to make comparisons on
the performance of investments with different holding periods. Thus to compare the performance of investments with different holding periods, one has to convert all investment returns on the standard scale, that is on the annual holding period basis. This is called
annualising a holding period return and can be done as follows:
Annualised HPR = ( 1 + HPR ) 1/ n _ 1
Where n is the number of years in the holding period.
Referring to Example 1, the annualised HPR for Sime Darby Bhd. shares is as follows:

Annualised HPR = (1 + 0.0948) ½ _ 1
= (1.0948) ½ _ 1
= 0.0463
= 4.63%
HPR = RM0.15 + (RM6.20 _ RM5.80) x 100
RM5.80
= 9.48%

HPR = (RM1.60 _ RM1.50) x 100
RM1.50
= 6.67%


2.3 Risk

Risk and return go together in investments and finance. Investment decisions involve a tradeoff between the two.

Definition – The chance that actual outcome from an investment will differ from the expected outcome. The more variable the possible outcomes that can occur the greater the risk.

2.4 Sources Of Risk

1. Interest rate risk
The variability in a security’s return resulting from changes in the level of interest rates. The changes affect all securities inversely. i.e. other things being equal, security prices move inversely to interest rates. It affects bonds more directly than common stocks and is a major risk faced by all bondholders.

2. Market risk
The variability in returns resulting from fluctuations in the overall market i.e the aggregate stock market. All securities are exposed to market risk.It includes a wide range of factors exogenous to securities including recession, wars, structure change in the economy and changes in consumer preferences.

3. Inflation risk
It is about purchasing power risk or the chance that the purchasing power of invested dollars will decline with uncertain inflation , the real return involves risk even if the nominal return is safe. It is related to interest rate risk, since interest rates generally rise as inflation increases because lenders demand additional inflation premiums to compensate for the loss of purchasing power.

4. Business risk
The risk of doing business in particular industry or environment.

5. Financial risk
It is associated with the use of debt financing by companies. The larger the proportion of assets financed by debt, the larger the variability in the returns, other things being equal. It involves financial leverage.

6. Liquidity risk
It is the risk associated with the particular secondary market in which a security trades. An investment that can be sold quickly and without significant price concession is considered liquid. The more uncertainty about price concession, the greater the liquidity risk.

7. Exchange rate risk
All investors who must internationally face the prospect of uncertainty in the returns after they convert the foreign gains back to their own currency. It can be defined as the variability in returns on securities caused by currency fluctuations . Sometime called as currency risk.

8. Country risk
Referred as political risk . Investors who are investing internationally direct or indirectly must consider the political, economic and stability and variability of a country’s economy.

2.5 Types of risk or The Components of risk

1. Unsystematic risk (nonmarket risk)
It is not related to overall market variability. This is the risk that is unique to a particular security and is related to factors such as business and financial risks Risk attributable to factors unique to a security.

2. Systematic risk (market risk)
Risk attributable to broad macro factors affecting all securities. It encompasses risks like interest rate risk, market risk, inflation risk etc. It is unavoidable and cannot be diversified. If the market rises strongly (a bull market) , most of the stocks will appreciate in value and when the stock market declines sharply (a bear market0, most of the stocks will depreciate in value. All securities have some systematic risk.

Total risk = systematic risk = unsystematic risk.

2.6 Diversification of risk

An investor can construct a diversified portfolio and eliminate part of the total risk i.e the diversifiable or nonmarket part (unsystematic risk). After the unsystematic risk is eliminated what is left is the non diversifiable portion or market risk (systematic risk). Market risk is inescapable. It is the risk of the overall market cannot be avoided.

2.7 Expected Risk and Return

Expected Return
Definition – It is the average of all possible return outcomes, where each outcome is weighted by its respective probability of occurrence.

n
ERi = ∑ Xi P(Xi)
i=1

Where
ERi = the expected return for security i.
Xi = the value of the it possible outcome.
P(Xi) = the probability of the it possible outcome
n = the number of possible outcome.

Estimating Risk
Standard deviation is being used in estimating total risk associated with the expected return.

n
S = √ ∑ [(Xi – ERi) 2 . P(Xi)]
i=1

where
S = standard deviation

Example 1
Calculate the expected return and total risk from the following data.

Possible return (Xi) Probabality P(Xi)
1% 20%
7% 20%
8% 30%
10% 10%
15% 20%

i. ERi = (0.01 x 0.2) + (0.07 x 0.2) + (0.08 x 0.3) + (0.1 x 0.1) + (0.15 x 0.2)

= 0.08

ii. Calculation of standard deviation

2.8 Capital Asset Pricing Model (CAPM)

• CAPM relates the required rate of return for any security with the risk for that security as measured by beta.
• Beta is the relevant measure of risk that cannot be diversified away in a portfolio.
• Beta is the measure that investors should consider in their portfolio management decision process.

Ki = RF + ßi [E(Rm) – RF]

Where
Ki = the required rate of return on asset i.
E(Rm) = the expected rate of return on the market portfolio.
ßi = the beta coefficient for asset i.
RF = risk-free rate

Market risk premium = E(Rm) – RF

Risk premium is the difference between the expected return for the market and the risk-free rate of return.

Assumptions:-

1. All investors have identical probability distributions for future rates of
return.
2. all investors have the same on-period time horizon.
3. All investors can borrow or lend money at the risk-free rate of return.
4. There are no transaction costs.
5. There are no personal income taxes.
6. There is no inflation.
7. No single investor can affect the price of a stock through his or her buying
and selling decisions.
8. Capital markets are in equilibrium.


Therefore risk premium for security i = ßi (market risk premium)
= ßi [E(Rm) – RF]

Examples;
If Rm = 15%; RF = 5%. The beta values for each security are as below.
ßA = 1.5 ; ßB = 1 ßC = 0.5 ßD = 0
Calculate the required rate of returns for each security.

Example :

TEN Bhd. has a beta coefficient of 0.5. If the market risk premium is 11%, determine the expected return for TEN Bhd.
E (rTEN) = rRF + β
i (E (rm) – rRF)
Given market risk premium = (E (rm) – rRF) = 11%
Therefore, E (rTEN) = 4% + 0.5 (11)% = 9.5%


2.9 Security Market Line (SML)

SML shows the trade-off between risk and expected return for all assets.
SML is the graphic representation of CAPM.
(a) In equilibrium where supply and demand are equal, all the returns of the securities will lie
on the SML.
(b) If the market is not in equilibrium, the estimated return of security will either lie below or
above the SML.

• In equilibrium each security should lie on the SML.
• If a security does not lie on the SML, what happens in the market.
• An investor might use other methods to determine the expected returns
for securities.
• The investor can assess a security in relation to the SML and determine
whether it is under or over valued.
• From the figure, security X has a high expected return derived from
fundamental analysis and plots above the SML. Security Y has a low
expected return and plots below the SML.
• Security X is undervalued because it offers more expected return than
investors require.
• Investors will do :-

Purchase security X. This demand will drive up the price of X. The return will be driven down until it is at the level indicated by the SML.
• Security Y is overvalued. It does not offer enough expected return as
required by investors.
• Investors will do :-
Sell security Y. This increase in the supply of Y will drive down its price. The return will be driven up because any dividends paid are now relative to a lower price. The price will fall until the expected return rises enough to reach the SML.
2.10 Risk- Return Relationship

• The risk-return tradeoff is the foundation of investment decisions.
• The tradeoff depicts a positive linear relationship between expected return
and risk.
• Risk-averse investor will not willingly assume more risk unless they expect to receive additional return.
The relationship between return and risk expected as below:-
1. The expected return should be positively related to the risk.
2. Over long period of time , the historical relation between return and risk should be positive.
3. Over relatively short periods; the tradeoff between return and risk is always expected to be positive but it may turn out to b

CHAPTER 1 - INTRODUCTION TO INVESTMENT

Topic 1 – Introduction To Investment

1.1 Investment Concept and The Differences Between Investment, speculation and Gambling
1.1.1 The Concept Of Investment

Definition of investment:-
i. The commitment of fund to one or more assets that will be held over some future time period. – Charles P. Jones.
ii. The exchange of cash for an asset with the hope that the asset will yield regular future income and/or an increase in the value of the asset such that the sum of the income and the eventual value of the asset is greater than its purchase price – Neoh soon Kean.

Financial Asset – Pieces of paper evidencing a claim on some issuer such as Federal Government or Corporation.

Real assets – Physical assets such as gold, real estate etc.

1.1.2 Differences Between Investment And Speculation

Study the following cases:
Case 1:
Johan bought 1,000 units of Public Bank shares at RM3.00 a share and intends to hold them
for the long term because he thinks that Public Bank would be able to pay “good” dividends
and the price of the shares would increase in the future.

Case 2:
Salleh bought 5,000 units of KIG shares at RM0.27 a share and intends to sell them as soon
as the price rises to RM0.35 a share.

Case 3:
Kam Soo bought 1,000 lottery tickets at RM3.00 a ticket with the hope of striking the first prize
plus bonus of RM9 million.

Case 4:
Rodney deposits RM100 every month in his savings account with Maybank so that he can
use the money as down payment for a car in two years’ time.
How do we categorise the 4 cases given above: savings, investment, speculation or gambling?


Case 1 is categorised as investment. This is because Johan is committing his funds for long
term with the expectation of deriving income from dividends which would be paid by Public
Bank as well as the expectation of capital gain derived from price increase in the share.

Case 2 is categorised as speculation. This is because Salleh is committing his funds for the
short term with the hope of getting capital gain when the price rises from RM0.27 to RM0.35
a share. Besides this, he is buying “penny stock”, that is, a low priced counter with the hope
of reaping a high return from it. The risk involved is also higher.

Case 3 is categorised as gambling. This is because Kam Soo is taking a very high risk
whereby he may lose his RM3,000 or he may be able to strike it very rich if he wins the first
prize or he may be able to win a small prize of RM100. The commitment of funds is very short
term and the risk is very high.

Case 4 is categorised as savings. This is because Rodney just put aside the money so that
he can use it in the future as down payment for a car. Besides this, if Rodney needs the
money in case of an emergency, he can also withdraw the amount from the bank. Thus the
time preference of money is short and the risk involved is very low.

1.Rationally based on the knowledge of past share price behavior.
It is possible to compute the probability of future return e.g PER or DY.
Investor can predict the likelihood of its price in the future.
Purely based on the hope that the future price will be higher rather than anything tangible.

2.Requires an investor to do some work before hand and decisions are made based on known facts and figures such as estimating future level of EPS and computing the past range of the Per and also comparing the present price and future price etc.
Usually based on wild rumours and unsubstantiated hearsays which cannot be checked for accuracy. It is much easier than investment.

3.Made for the long term (i.e 2 years or more) based on the idea that one is much more certain when one is trying to predict the cumulative results of many daily movements. One invests with the knowledge that over the long run , the real investors will always make a gain.
Usually made for the short term (i.e +3 months or less) based on the idea that certain events may result in a rise in price (e.g bonus, rights, takeover etc )

4.Over a long period of time, true investment tends to produce a positive result.
Based on research (in US and Europe) long term investment consistently produced much higher return than fixed deposit .
It is not based on anything concrete , its result is not at all predictable. It can occasionally produce very high gains just as it can produce very high losses.
It is likely to lead to many sleepless nights and anxious days since its result is uncertain. Speculators must be alert and take quick action to catch the right moment.

The difference between Investment and Gambling.


1.One can expect to make profit over the long run.
Always result in a loss over the long run although the gambler may not know it.
How about Savings ?
Saving is a part of investment. It is a non-marketable security with very low risk and very safe. Its liquidity is very high.

1.2 Types of Marketable and Non-Marketable Securities.1. Direct Investment

a) Non-Marketable Securities
· Saving deposits
· Certificates and time deposits
· Money market accounts

b) Marketable Securities
i. Money Market- Treasury Bills- Negotiated Certificates Of Deposits- Commercial Paper- Eurodollars- Repurchase Agreements- Banker’s Acceptances
ii. Capital Market- Fixed Income/Bonds- Equities (Common Shares)
iii. Other Types- Options- Warrants- Convertibles- Future Contracts
2. Indirect Investment
It involved Investment Companies either Open end or closed end investment companies.
Definitions Of Key Words.

Fixed income securities – Securities with specified payment dates and amounts.

Treasury Bond – Long term bonds sold by the government.

Federal agency Securities – Securities issued by federal credit agencies.

Municipal Bonds – Securities issued by political entities other than the federal government and its agencies .e.g. states and city.

Corporate Bonds – Long term debt securities of various types sold by corporations.

Preferred Stock – An equity security with an intermediate claim (between the bondholders and the stockholders) on a firm’s assets and earnings.

Liquidity Securities – The non-debt securities of a corporation representing the ownership interest.
Equity – Derivative securities – Securities that derive their value in whole or in part by having a claim on the underlying common stock.
Warrant – A corporate –created option to purchase a stated number of common shares at a specified price within a specified time (typically several years).
Convertible Securities – Bonds or preferred stock that are convertible at the holder’s option into shares or common stock of the same corporation.
Options – The right but not the obligation to buy or sell shares of stock within a specified period at a specified price.
Put – An option to sell a specified number of shares of stock at a specified price within a nine-month period.
Calls – An option to buy stock at a stated price within a specified period of months.
Futures Contracts – Agreements providing for the future exchange of a particular asset at a currently determined market price.
Indirect Investment – The buying and selling of the shares of investment companies which in turn, hold portfolios of securities.
Investment Company – A financial company that sells shares in itself to the public and uses these funds to invest in a portfolio of securities.
Open –end investment company – An investment company whose capitalization constantly changes as new shares are sold and outstanding shares are redeemed.
Mutual Funds – The popular name for open – end – investment company.
Money Market Mutual Fund _ A mutual fund that invests in money market instruments.
Closed – end investment – An investment company with a fixed capitalization whose shares trade on exchanges and OTC.


1.3 The Concept and characteristics of Money market and Capital Market

1.3.1 Money Market
· The market for short-term, highly liquid, low risk assets such as Treasury Bills and Negotiable Certificate of Deposits.
· Highly marketable securities and low probability of default.
· Money market securities is a short-term debt instruments sold by governments, financial institutions and corporations to investors with temporary excess funds to invest.
· The market is denominated by financial institutions, especially banks and governments.
· The size of transactions typically is large.
· The maturities of money market instruments range from one day to one year and often less than 90 days.
· Some of the investments are negotiable and actively traded.
· Investors may invest directly or indirectly.


Money Market Securities

1. Treasury bills
· The premier money market instrument , fully guaranteed and very liquid.
· They are sold on an auction basis at a discount from the face value.
· The discount determines the yield.
· The greater the discount at time of purchase, the higher the return earned by investors.
2. Negotiable Certificates of Deposits (NCD)

· Issued in exchange for a deposit of funds.
· It is a marketable deposit liability of the issuer, who usually stands ready to sell new NCD on demand.
· The deposit is maintained in the bank until maturity at which time the holder receives the deposit plus interest.
· Marketable securities which it can be sold in the open market before maturity.

3. Commercial Paper (CP)
· A short-term, unsecured promissory note issued by large, well-known and financially strong corporations.
· Usually sold at a discount.
· It is weak in the market and most of it held to maturity.
· It is rated by rating services as quality.

4. Eurodollars

· Dollar-denominated deposits held in foreign banks located abroad.
· Originally developed in Europe .
· It consists of both time deposits and NCDs.

5. Repurchase Agreement (RPs)

· An agreement between a borrower and a lender to sell and repurchase the securities .
· The borrower initiates an RP by contracting to sell securities to a lender and agreeing to repurchase these securities at a pre-specified price on a stated date.
· The effective interest rate is given by the difference between the purchase price and the sale price.

6. Banker’s Acceptance (BA)

· A time draft drawn on a bank by a customer, where by the bank agrees to pay a particular amount at a specified future date.
· It is negotiable instruments because the holder can sell them at discount in the money market.
· Normally used in international trade.
· It is traded in a discount basis.
1.3.2 Capital Market

It can defined as the market for long-term securities such as bonds and stocks.
It encompasses instruments with maturities greater than one year.
Risk is generally much higher than in the money market because of the time to maturity and the nature of the instruments.
It includes both debts and equity instruments with equity instruments having no maturity date.

1.4 Issuance of Security Equity

· Purpose is to raise funds from the public.

1.4.1 Reasons For Going Public
i. Raising Funds
· To expand their business either locally or overseas.
· Companies are able to tap funds from public for business expansion.

ii. Higher Profile
Generally a listed company carries a higher corporate profile in the business world than an unlisted company.

Reasons:-

· It has met the stringent requirements of the KLSE.
· It has the financial ability to raise funds for larger projects from the public.
· It has managed by a team of forward-looking professionals who work closely with financial institutions and other professional entities.
· It always strives to perform better because of its commitment to the investors in terms of dividend payments and share price performance.
· The publicity of a listed company is generated by stock broking companies.


iii. Future Expansion

· Business opportunities are usually generated by interested parties; local or overseas, who are interested to do business with them.

iv. Professionalism
· Injection of fresh blood into the company.
· New management skill is produced .
· Accounting system will be updated to meet the exchange’s requirement.

1.4.2 Methods or Types of Share Issues
a) Initial Public Offers (IPO)
· IPO is the offer of shares by company to the public through the KLSE.
· The new shares are issued to the public at a pre-determined price.

When a firm sells its shares to the public for the first time, this is termed the initial public offering. This is one of the ways an existing firm can raise additional funds for expansion plans, working capital or repayment of borrowings and hire-purchase. Besides raising funds, initial public offerings may also serve other purposes such as to provide opportunities to the
public to invest in the company, to comply with the requirement of Bumiputera equity
participation as required in the National Development Policy, to enable the company to gain
recognition and enhance its stature and corporate reputation from the listing on the stock
exchange, etc.
In an initial public offering, a copy of the prospectus must be registered with the Securities
Commission and a copy of the prospectus together with the form of application must be
odged with the Registrar of Companies.

b) Offer For sale
· It is block of shares belonging to existing shareholders will be offered for sale to public.
· The price will be pre-determined and will be underwritten.
· Intending investors will be subscribe for the issue via application form.

c) Special issues
· A listed company gives a special issue of shares at a price which is lower than the market price e.g to Bumiputra to fulfill the 30% Bumiputra equity participation.

d) Private Placements
· New securities issues are being sold directly to a group of large institutional investors e.g life insurance companies, pension funds and investment companies by passing the open market.
· Buyers are pre-determined.

e. Rights Issues
· It is an issue of new shares to the company’s existing shareholders.

f. Bonus Issues
· Giving a bonus issue to reward the shareholders.

g. Restricted Issue
· It is an issue of new shares to shareholders within a group of companies.

h. Issues of shares for acquisitions, takeovers and mergers.
· Issuing new shares in exchange for the assets or issued capital.

i.Issue of shares arising from conversion.
· The increase of shares by conversion of debt equities, warrants, transferable subscription rights etc. to ordinary shares.

j. Employee Share Option Scheme.
· Gives the employees the option to subscribe a certain number of shares in the company within a specified time period.


1.5 The Primary Markets and secondary markets
1.5.1 Primary Market
A primary market is a market that deals in new securities. For example, a company
issuing shares for the first time would sell the shares in the primary market.
· Definition – The market for new issues of securities, typically involving investment bankers.
· In the case of issuer is selling securities for the first time ; referred as initial public offerings (IPO).
· IPO – shares of a company being sold for the first time.
· New securities may trade repeatedly in the secondary market, but the original issuers will be unaffected.
· Investment Bankers – Firms specializing in the sale of new securities to the public, typically by underwriting the issue.
· Underwriting – The process by which investment bankers purchase an issue of securities from an issuer and resell it to the investors.
· The investment bankers own the securities until they are resold.
· Investment bankers bear risk in the underwriting stage.
· Investment bankers can protect themselves by forming a syndicate or a group of investment bankers to diversify their risk.
· Syndicate – Several investment bankers involved in an underwriting.
1.5.2 Secondary market
A secondary market is a market that deals in the sale and purchase of existing securities.
Definition – The market for trading of existing securities.
It provides the place for investors to trade securities among themselves.
It exist for trading of common and preferred shares , warrants, bonds, options etc.
1.6 Fixed Income Securities

The buyer of a bond knows the future stream of payments to be received from the buying and holding of the bond maturity.
Bonds are fixed income securities.
The interest payments and principal repayment are specified at the time the security is issued and fixed for the life of the bond.
A bond certificate is an evidence that a company has borrowed a fixed amount of money from a lender with a promise to repay the principal amount at maturity and pay periodic interest on the principal.

Types Of Bonds:-

1. Corporate BondsIssued to raise funds for investment, expansion of business, new businesses etc.Various types of corporate bonds :- i. Debentures - Unsecured bonds. ii. Subordinated bonds - Same as debenture but in the event of default, subordinated bondholders have a claim on the assets of the company only after it has satisfied the claims of all senior secured bond and debenture holders. iii. Income Bonds - Usually offer higher returns to compensate investors for the added risk of uncertainty in interest payments of the issuer. iv. Convertible Bonds - It gives the bondholder the option to convert the bonds into the issuer’s common stock.
v. Zero Coupon Bond - It promises no interest payments during the life of the bond but only the payment of the principal at maturity.

vi. Junk Bonds - High risk and high yield bonds. - Issued in connection with mergers , companies with heavy debts to repay
and stock buybacks by corporations. vii. Mortgage Bonds - Issued with a first-mortgage lien on some or all of the issuer’s properties.

2. Municipal Bonds - Issued by states, cities and other political entities e.g airport authorities.
3. Eurobonds- Bonds are underwritten by international bond syndicates and sold in several national markets. E.g Eurodollar bonds (Securities denominated in US dollars, underwritten by an international syndicate and sold to non-US investors outside the US.

1.7 Unit Trust
Basically a unit trust is an investment scheme that pools funds from individual investors and invests these funds in a range of securities or assets depending on the financial objectives, investment strategy and risk tolerance of the particular type of fund.
These managed investment companies establish the fund and handle the marketing,
record keeping and administration of the funds. Generally, unit trust is considered attractive
because it enables small investors with limited funds, limited financial knowledge and
time constraints to invest in a wide array of financial products such as stocks, bonds,
government securities etc. By pooling the funds from a large number of small investors,
the investment companies provide a mechanism for these investors to enjoy the benefits
of flexibility and diversification of large-scale investing.
The unit holders are investors who have claims on the portfolio established by the
investment company. The proportion of claims depends on the number of shares
purchased in the investment company. The return to unit holders would be in the form of
dividends and capital appreciation derived from the portfolio in the fund.
· It is an open-end investment company.
· An investment company whose capitalization constantly changes as new shares are sold and outstanding shares are redeemed.
· A unit trust is formed by a sponsor (e.g a financial institution) purchases a specified set of securities, deposits them with a trustee (a bank or trust company) and receives in turn a number of shares representing proportional interest in those securities.
· The sponsor then sells the unit trusts to the investors.
· All income received from the portfolio is paid out by the trustee to shareholders.
· The sponsor will be compensated for the effort and risk involved by setting a selling price for the shares.
· Most unit trusts redeem shares at net asset value (NAV) by calculating the total market value of the securities in the portfolio subtracting any trade payables and dividing by the number of mutual fund shares currently outstanding.
· If NAV> market price – The fund is selling at a discount.
· IF NAV<>