Unit 5: Types of Investments PDF

Types of Investments. It discusses different types of investments available in the financial markets, including: 1.​ Mutual Funds – Their structure, objectives, and securities they hold. 2.​ Fixed Income Securities – Bonds, money market instruments, treasury bills, and other debt...

Types of Investments. It discusses different types of investments available in the financial markets, including: 1.​ Mutual Funds – Their structure, objectives, and securities they hold. 2.​ Fixed Income Securities – Bonds, money market instruments, treasury bills, and other debt securities. 3.​ Bonds – Features, yield calculations, risks, and their role in mutual funds. 4.​ Equities (Stocks) – Common and preferred shares, their benefits, risks, and use in mutual funds. 5.​ Derivatives – Options, futures, and forward contracts, including their use for hedging and speculation. It seems like an educational resource for investment professionals, particularly Dealing Representatives, to understand how different securities function and are used in mutual funds. Let me know if you need specific details from it! 4o You said: expein to me about the unit more ChatGPT said: Unit 5 of the Canadian Investment Funds Course is focused on Types of Investments. It is designed for Dealing Representatives to understand the different types of investments available in financial markets and how they are used in mutual funds. The unit takes about 2 hours and 10 minutes to complete and is divided into several lessons. Overview of Unit 5: Types of Investments This unit explains how different types of investments work, their risks and returns, and their role in mutual funds. It is essential for professionals who provide investment advice to clients. Lessons in This Unit: 1.​ Building Blocks of Mutual Funds 2.​ Fixed Income Securities 3.​ Bonds 4.​ Equities (Stocks) 5.​ Derivatives (Options & Futures) Lesson 1: Building Blocks of Mutual Funds ​ What are Mutual Funds? ○​ Mutual funds are collections of different investments (stocks, bonds, etc.). ○​ They are managed to achieve specific investment goals. ​ Investment Objectives of Mutual Funds: ○​ Safety of Principal → Protects investor’s original investment. ○​ Income → Provides regular income, usually through bonds. ○​ Growth → Aims for long-term capital appreciation, often through stocks. Example: Bob wants to buy a house in one year and needs a safe investment. His Dealing Representative recommends a mutual fund focused on safety of principal and some income so Bob doesn’t lose his money. Lesson 2: Fixed Income Securities ​ What are Fixed Income Securities? ○​ These are loans where investors lend money to governments or corporations in exchange for regular interest payments. ○​ They include treasury bills, bonds, bankers’ acceptances, and commercial papers. ​ Key Features of Fixed Income Securities: ○​ Term-to-Maturity → How long until the loan is repaid. ○​ Par Value → The amount repaid at maturity (e.g., $1,000). ○​ Coupon Rate → The interest paid to investors. Types of Money Market Securities: 1.​ Treasury Bills (T-bills) → Short-term, government-backed, very safe. 2.​ Provincial & Municipal Papers → Similar to T-bills, issued by local governments. 3.​ Bankers’ Acceptances (BAs) → Short-term corporate loans backed by a bank. 4.​ Commercial Papers (CPs) → Short-term corporate loans, riskier than BAs. Example: Gary buys a 120-day T-bill with a face value of $10,000 for $9,950. When it matures, he gets $10,000, earning $50 in interest. Lesson 3: Bonds ​ What are Bonds? ○​ Bonds are longer-term loans (over 1 year) issued by governments or companies. ○​ Investors receive regular interest payments (coupons) and get their principal back at the end. ​ How Bonds Work: ○​ Bonds can be traded in the market, and their price changes based on interest rates. ○​ If interest rates increase, bond prices decrease (and vice versa). Types of Bonds: 1.​ Coupon Bonds → Pay regular interest until maturity. 2.​ Zero-Coupon Bonds → Sold at a discount, but pay full value at maturity. 3.​ Convertible Bonds → Can be turned into company shares. 4.​ Callable Bonds → Can be repaid early by the issuer. 5.​ Retractable Bonds → Can be sold back to the issuer before maturity. Example: Karen buys a 3-year ABC bond for $10,000 at a 6% coupon rate, receiving $300 every 6 months in interest. Lesson 4: Equities (Stocks) ​ What are Equities? ○​ Equities are shares of ownership in a company. ○​ Investors can earn profits if the stock price increases. ○​ Companies issue Common Shares and Preferred Shares. Types of Shares: 1.​ Common Shares: ○​ Investors get voting rights and potential dividends. ○​ Prices can go up or down based on company performance. 2.​ Preferred Shares: ○​ Fixed dividend payments, less risk than common shares. ○​ No voting rights. Example: Shi-woo buys 400 shares of a company at $40 per share ($16,000 total). The stock price rises to $55, making her investment worth $22,000. Later, the company struggles, and the stock drops to $26, reducing her investment to $10,400. Lesson 5: Derivatives (Options & Futures) ​ What are Derivatives? ○​ Financial contracts that get their value from stocks, bonds, commodities, or currencies. ○​ Used for hedging risk or speculating for profit. Types of Derivatives: 1.​ Options → The right (but not obligation) to buy/sell an asset at a fixed price. ○​ Call Option: Right to buy a stock. ○​ Put Option: Right to sell a stock. 2.​ Futures Contracts → Legal obligation to buy/sell a commodity at a set price. ○​ Used by farmers, oil producers, and currency traders. 3.​ Forward Contracts → Similar to futures but customized between two parties. Example: Joe is a soybean farmer. He wants to protect himself from price drops. So, he enters a futures contract to sell his soybeans at $10 per unit in six months, even if prices fall to $8 per unit.