ACTSC 371 - Introduction to investment

Estimated reading time: 2 minutes

Table of contents

Chapter 1: The Investment Environment

History of Investment

  • 1954 BC - Code of Hammurabi
  • 1600s - Merchant Banks
    • 1602 - first stack market Amsterdam
    • 1637 Tulip builb bubble & collapse
  • 1792 - N.Y. stock exchange (1933 -> 1st securities act)
  • 1861 - Toronto Stock exchange -> 18 companies
  • 1929 - Crach “Bad things happenning to good people”
  • 1987 - “Black Monday”
  • 2000 - Dot com bubble & crash (2010 - 2012 -> equity return)
  • 2008 - Financial Crisis (housing bubble)

Types of Investment

  • Debt: Issuer borrows money from investors
  • Equity: Issuer sells an ownership interest to investors

Chapter 2: Financial Markets and Instruments

Financial Instruments


  • Short-term (< 1 year) -> Money market
  • Long-term (> 1 year) -> Bonds (loans, mortgages, LDOs, MBs)


  • Common Share
  • Preferred Share
  • ADR

Chapter 3: Trading on Securities Markets

Markets and orders


  • Direct market
  • Brokered market
  • Dealer market
  • Auction market


  • Market order
  • Limit order

Chapter 4: Risk and Return

Different investments carry different levels of risk and different levels of return. A 30 day treasury bill issued by the Government of Canada is not as risky as a ten year bond issued by Canadian Tire say. If the two investments paid the same return to investors, no one would buy the Canadian Tire bond. Investors must be compensated for the risk, or they won’t invest. We saw from the historical survey on investment returns, that generally, investors are compensated for risk. Equity investors have earned higher rates of return over the long term than debt investors have, etc.

Chapter 5: Capital Allocation to Risky Assets

Risk and Risk Aversion

The utility value of any investment or investment portfolio refers to the attractiveness of that investment’s risk/return profile.

Chapter 7: Capital Asset Pricing Model

Modern portfolio theory is a mathematical framework for building a portfolio of risky assets in order to optimize the expected return for a given level of risk. It reveals that since it is the return and risk of the portfolio that is of utmost importance, securities should be managed by their contibution to increasing the return and reducing the risk of the portfolio, rather than based on the risk and return levels for each individual security.

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