Investment

arifinomita360 June 20, 2020
What is Investment?

Investment is simply the commitment of funds for a particular period of time to get the greater value of the money invested in the future period.

Investment involves an element of risk. The extent of risk-taking depends on the expectation of getting a return. That is, more the expectation, more the risk.




Why growth is expected in investment?

There are trifold reasons for this expectation-
  1. Inflation
  2. Time Value of money
  3. Risk
In a world where there is no inflation, the reward for waiting is simply the pure time value of money or risk.
r = r* + IP + RP
Where, 
r = return on investment
r* = real risk-free rate of return/ pure time value of money
IP = Inflation premium
RP = Risk premium


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