Solution and Answer Guide FRANK K. REILLY, KEITH, C. BROWN, SANFORD J. LEEDS, INVESTMENT ANALYSIS & PORTFOLIO MANAGEMENT, 12TH EDITION, © 2025, 9780357988176; CHAPTER 1: THE INVESTMENT SETTING TABLE OF CONTENTS Answers to Questions..........................................................................................................1 Answers to Problems ......................................................................................................... 5 Appendix 1: Answers to Problems .....................................................................................9 ANSWERS TO QUESTIONS 1. When an individual’s current money income exceeds his or her current consumption desires, he or she saves the excess. Rather than keeping these savings in his or her possession, the individual may consider it worthwhile to forego immediate possession of the money for a larger future amount of consumption. This trade-off of present consumption for a higher level of future consumption is the essence of investment. An investment is the current commitment of funds for a period of time in order to derive a future flow of funds that will compensate the investor for the time value of money and the expected rate of inflation over the life of the investment, as well as provide a premium for the uncertainty associated with this future flow of funds. 2. Students in general tend to be borrowers because they are typically not employed and thus have no income (or they are employed with limited income), but they obviously consume and have expenses. The usual intent is to invest the money borrowed in order to increase their future income stream from employment. In other words, students expect to receive a better job and higher income due to their investment in education. 3. In the 20–30-year-old segment, an individual would tend to be a net borrower because s/he is in a relatively