Principles of Investment

Colin A. Jones () and Edward Trevillion ()
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Colin A. Jones: Heriot-Watt University
Edward Trevillion: Heriot-Watt University

Chapter Chapter 2 in Real Estate Investment, 2022, pp 23-41 from Springer

Abstract: Abstract This chapter focuses on the principles of investment. It looks at basic concepts underpinning investment decision-making and begins by defining risk and return and explains the use of yields. The concept of ‘value’ is examined and the chapter distinguishes between price, value and worth. Investing in risky assets as opposed to risk-free assets implies that an investor expects to be compensated by higher return. This compensation is often referred to as a risk premium, and the chapter examines the principles of how this might be calculated for real estate investment. The chapter sets out the Discounted Cash Flow (DCF) approach for estimating value which allows an assessment of an investment based on the ideas of the time value of money and which enables an investor to price an investment by examining its expected future stream of returns. The final topics of the chapter are gearing and maturation. These are key processes in the real estate market that influence returns. The former is particularly important in short-term variations in returns while the latter is a long-term influence on investment.

Keywords: Risk and return; Yields; Risk premium; Price; Value; Worth; Theory of pricing; Discounted cash flow; Gearing; The role of debt (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-031-00968-6_2

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DOI: 10.1007/978-3-031-00968-6_2

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