1. financial investment decision : individual
investors and institutional investors invest money in
financial instruments, such as bank deposits, government
bonds, corporate bonds, shares of stock, or professional
investment funds. They have to decide on the time
horizon to invest over, what securities to include in
the investment portfolio, and how to adjust the
portfolio over time.
2. financing decision : part of the securities traded on the
financial markets involve corporate bonds and shares of
stock. Together with bank loans, these are the major
sources of corporate financing. Since production
processes take time, the firmís activities need to be
financed and the firm has to decide on what securities
to issue and what bank loans to take. These are capital
structure decisions. Except for its equity, the
securities issued by the firm are liabilities to the
3. capital investment decision : the money that has been raised from
issuing securities and taking loans is invested in
projects. These projects are the assets of the firm.
Here the firm faces the problems of identifying
investment projects, determining the profitability of
investment projects (on basis of which a go/no-go
decision is made), and managing the projects over time.
4.a. reinvestment decision : part of the money generated by the
investment projects (the cash flow) can be reinvested in
the firm (but what part?) either in the form of
replacement investments or as growth investments.
4.b. financing decision : part of the cash flow can be used to pay
interest over bonds (coupons) or bank loans, repay
loans, pay dividends to shareholders (dividend policy),
or buy back some portion of the shares outstanding.
These are all financing decisions.
5. asset pricing : the trading activities in financial securities (buying and
selling) will result in market prices of these
securities. These prices can be used for valuing the
(assets of the) firm and the impact of decisions.
All education provided for by the Finance Group
addresses in a greater or less degree the different but
interrelated decision types and the pricing process in