Investment Metrics, Market Structures, and Tax Deductions

Tax Deductions for Business Operations

You can write off operational expenses from your taxes for the year in which they occur. This means you can deduct 100 percent of your daily expenses each year.

Operational Expenses vs. Capital Expenditures

• Operational Expenses (Write-offs): Offer the most advantageous tax deductions for the short term, allowing a 100% deduction in the year incurred.
• Capital Expenditures (Depreciation): Must be depreciated. This means you can deduct only a part of the cost of the asset each year over the life of the asset.

Understanding Risk Aversion

Risk Averse: Investing conservatively, avoiding risk unless there is adequate compensation.

Standard Deviation and Investment Volatility

Standard Deviation is applied to the annual rate of return of an investment to measure the investment's volatility. Standard deviation is also known as historical volatility and is used by investors as a gauge for the amount of expected volatility.

It provides a precise measure of how varied a fund's returns have been over a particular time frame, both on the upside and the downside.

Correlation Coefficient in Forecasting

Coefficient of Variation: The correlation coefficient, a concept from statistics, is a measure of how well trends in the predicted values follow trends in past actual values.

It is a measure of how well the predicted values from a forecast model "fit" with the real-life data.

Using Decision Trees for Strategic Choices

Decision Trees are excellent tools for helping you to choose between several courses of action. They also help you to form a balanced picture of the risks and rewards associated with each possible course of action.

Defining the Capital Market

A Capital Market is any market where a government or a company (usually a corporation) can raise money (capital) to fund their operations and long-term investment.

Two common ways to generate capital are selling bonds and selling stock.

Primary Market Versus Secondary Market

The Primary Market

In the primary market, securities are first issued to investors through an Initial Public Offering (IPO). Investment banks assist with IPOs by guaranteeing a minimum price for securities before selling them to the public.

The Secondary Market

The secondary market is where people buy and sell previously issued securities. This includes stock exchanges, bond markets, and other entities that trade financial instruments.

Securities trade in secondary markets based on their liquidity, which means their ability to be sold without financial risk.

Money Markets Compared to Capital Markets

Capital and money markets are where big banks, governments, and major corporations raise money.

• Money Markets: Where short-term public and private debt is traded.
• Capital Markets: Where long-term securities are traded.