Investment

Question 1

Define investment

Answer 1

Investment is the committing of time, effort and money into assets and projects that have potential of increasing value with time.
(foregoing today’s consumption; saving, for an activity that will bring you more income in the future)

Question 2

classify the 3 different types of investment

Answer 2

1) Short term investment
Type of investment where the money invested is expected to bring returns within an year
e. g:
starting a business like salon, shop, grocery shop

2) Medium term investment
Type of investment where money invested is expected to bring returns in 1 to 5 years
e. g:
Shareholding; buying a share of a company with aim to get dividend
Developing farm to increase productivity

3)Long term investment
Type of investment where money invested is expected to bring returns after 5 or more years.
The returns start flowing after completion of the project.
e. g:
Investing into buildings (real estate)
Buying farm/plot
Investing in infrastructure bonds.

Question 3

What factors affects investment decisions?

Answer 3

Capital
Goal
Age
Environment
Culture

Question 4

What are some types of risks related to investing?

Answer 4

Concentration risk: Putting all your money into one investment increases risk in case it fails
Fraud risk: Being deceived by someone into investment where on your side you don’t get any returns.
Market risk: Investment loosing value because of economic changes and other factors
Financial risk/Business risk: Business you invest in fails to pick up, goes bankrupt
Inflation risk: The amount you are using in services and goods rises faster than the returns of your investment.
Liquidity risk: You can’t easily sell your investment and get your money out when you want any time so it means failure to have cash when you need it.

Question 5

What are the common sources of funds for investment?

Answer 5

Personal funds
Group funds
Loans
Family members