Investment Flashcards

1
Q

Application of money to earn more money

A

Investment

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2
Q

Refers to utilization of resources in order to increase income or production output in the future

A

Investment in Economics

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3
Q

Refers to any physical or tangible asset

A

Investment for economists

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4
Q

Money utilized for buying financial assets

A

Investment for Finance professionals

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5
Q

Most important feature of investment

A

High Market Liquidity

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6
Q

Method used for evaluating the value of a financial investment

A

Valuation

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7
Q

Types of Investments

A
  1. Economic
  2. Financial
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8
Q

Undertaken with the expectation of increasing the current economy’s capital stock which consists of goods and services desired by the society

A

Economic Investment

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9
Q

Money invested in financial investments is ultimately converted into physical assets

A

Financial Investments

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10
Q

Reflect the progress pattern of the real market, financial market exist only as a support to the real market.

A

Perfect Financial Market

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11
Q

Putting money into something with an expectation of gain without thorough analysis, without security of principal and without security of return.

A

Speculation/ Gambling

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12
Q

Nature of Investment

A
  1. Return
  2. Risk
  3. Safety
  4. Liquidity
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13
Q

Money made or lost on an investment over some period of time.

A

Return

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14
Q

Primary Objective of an investment

A

Return

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15
Q

Return may be received in what form?

A

Yield (Dividend/Interest) + Capital Appreciation (Sale Price– Purchase Price)

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16
Q

Return depends on what?

A
  1. Nature of Investment
  2. Maturity Period
  3. Host of other factors
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17
Q

Refers to the loss of the principal amount of an investment

A

Risk

18
Q

Factors affecting Risk

A
  1. Longer maturity period, higher risk
  2. Government/ Semi- government, less risk
  3. Debt instrument/ fixed deposit, low risk
  4. Ownership instrument, more risk
  5. Risk of degree of variability of return: Ownership > Debt
  6. Tax Provisions
19
Q

Protection of the investor’s principal amount and expected rate of return

A

Safety

20
Q

Investment ready to convert into a cash available immediately in cash form.

A

Liquidity

21
Q

Characteristics of Investment

A
  1. Safety
  2. Income
  3. Capital Growth
22
Q

Safety investment

A

Treasury Bills, CD, Commercial Paper, Banker’s Acceptance Slips, Fixed Income (Bond) Market

23
Q

Slightly riskier offer higher income return than AAA

A

A or Aa

24
Q

Medium risk less income than junk bonds

A

BBB

25
Q

Highest Potential bond yields available but at highest possible risk

A

Junk Bonds

26
Q

Offer low yield but a considerable opportunity for an increase in value

A

Growth Securities

27
Q

offers potential tax advantage because of their lower tax rate

A

Capital gains

28
Q

Objectives of Investment

A
  1. Capital Appreciation
  2. Current Income
  3. Capital Preservation
  4. Speculation
  5. Tax Minimization
  6. Marketability/ Liquidity
29
Q

It is the uncertainty associated with the returns from an investment that introduces a risk

A

Concept of Risk

30
Q

Elements of Risk

A
  1. Systematic Risk
  2. Unsystematic Risk
31
Q

Impact of these changes in system-wide

A

Systematic Risk

32
Q

Variability in returns occurs due to such Firm-specific factors

A

Unsystematic Risk

33
Q

Actual income from a project as well as appreciation in the value of capital

A

Return

34
Q

Components of Return

A
  1. Periodic cash flows from the investment
  2. change in price of the asset
35
Q

Total Return Formula

A

TR= (Cash Payment received + Price change in assets over the period)/ Purchase price of the asset

36
Q

Allows investors to reduce the overall risk associated with their portfolio but may limit potential returns

A

Diversification

37
Q

Kinds of investors

A
  1. Retail/ Individual
  2. Institutional
38
Q

Invests in securities and assets on their own, in smaller quantities

A

Retail/Individual investor

39
Q

Company/organization that invests money to buy securities or assets

A

Institutional investor

40
Q

The money you have now is worth more than the identical sum in the future due to its potential earning capacity

A

Time Value of Money

41
Q

Potential gain on interests where that money is received today and held in savings account

A

Opportunity costs

42
Q

Formula for future value

A

FV= Present Value x [1+ (interest rate/number of compounding periods per year)] (n + number of years)