Other Problems

Investment problems do not always take the special shapes outlined in the preceding categories, A hedging problem may contain an element of pure investment, and conversely an investment may be tempered with a degree of hedging Fortunately, the same principles of analysis are applicable to such combinations.

One type of problem that occurs frequently is a combined consumption-investment problem. For example, a married couple at retirement, living off the income from their investments, will most likely invest differently than a young couple investing for growth of capital The requirement for income changes the nature of the investment problem- Likewise, the management of an endowment for a public enterprise, such as a university must consider growth objectives as well as consumptionlike objectives associated with the current operations of the enterprise,

We shall also find that the framework of an investment problem is shaped by the formal methods used to treat it. Once we have logical methods for representing investment issues, new problems suggest themselves. As we progress through the book we shall uncover additional problems and obtain a deeper appreciation for the simple outlines given here.

1.4 ORGANIZATION OF THE BOOK

The organization of this book reflects the notion that investment science is the study of how to tailor cash flow streams. Indeed, the cash flow viewpoint leads to a natural partition of the subject into four main parts, as follows

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