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Difference between Investment Speculation and Gambling

  When it comes to the world of finance, terms like investment, speculation, and gambling are often used interchangeably, but they are not the same thing. While all three involve putting money at risk, they differ in terms of the level of risk, the potential for return, and the time horizon What is Investment? Investment refers to the purchase of an asset with the goal of generating income or capital appreciation. It is a long-term strategy that involves putting money into assets that have the potential to grow in value over time, such as stocks, bonds, mutual funds, and real estate. The goal of investing is to build wealth over the long term and to achieve financial goals, such as retirement or a child’s education. Investing requires research, analysis, and a long-term outlook. Investors must be patient and disciplined, as the value of their investments may fluctuate over time. While there is no guarantee that an investment will appreciate in value, history has shown that, over the lo
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OPTIMUM PORTFOLIO SELECTION

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PORTFOLIO SELECTION             The objective of every investor is to maximize his returns and minimize his risk. Diversification is the method adopted to reduce the risk. It essentially results in the construction of portfolios. The proper goal of construction of portfolios would be to generate a portfolio that provides the highest return and lowest risk. Such a portfolio would be an optimal portfolio. The process of finding the optimal portfolio is described as portfolio selection.             The conceptual framework and analytical tools for determining the optimal portfolio in disciplined and objective manner have been provided by Harry Markowitz in his pioneering work on portfolio analysis described in his 1952 “JOURNAL OF FINANCE” article and subsequent book in 1959. His method of portfolio selection is come to be known as Markowitz model. In fact, Markowitz work marked the beginning of what is today the Modern Portfolio Theory. FEASIBLE SET OF PORTFOLIOS     
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Bond Features and Theories

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Bond Features and Prices Bonds are debt securities – the bondholder is a creditor of the entity issuing the bond. The bondholder makes a loan of the face value to the issuer. The issuer (borrower) promises to repay to the lender (investor) the principal on maturity date plus coupon interest over its life. Bond terms Par value (face value): Face amount paid at maturity. Coupon rate: Percentage of the par value that will be paid out annually in the form of interest. Annual interest payment on bond = coupon rate  par value Maturity: The duration of time until the par value must be repaid. Example A bond with par value of $1,000 and coupon rate of 8% might be sold to a buyer for ` 1,000. The bondholder is then entitled to a payment of ` 80 (= 8%  ` 1,000) per year, for the stated life of the bond, say 30 years. The ` 80 payment typically comes in two semi-annual instalments of ` 40 each. At the end of the 30-year life of the bond, the issuer also pays the ` 1,000
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