Investment Management

Question 1

What is investment planning ?

Answer 1

The evaluation and selection of appropriate investment assets

Question 2

A person can invest in the following investment types :

Answer 2

• financial investments
  
  • money market investments
  • bonds
  • shares
  • collective investments
• non-financial investments
  
  • Real estate
  • Collectibles
  • Alternative assets

Question 3

Money markets investments and bonds are examples of investments for ______

Answer 3

Income

Question 4

Collectibles are examples of investments for _______

Answer 4

Growth

Question 5

Investments in shares and property is examples of investment in _______

Answer 5

Income and Growth

Question 6

What are nominal rates of return on investments ??

Answer 6

The actual returns earned on an investment before adjusting for inflation

Question 7

What are real returns ?

Answer 7

Investments returns that have been adjusted for inflation

Question 8

What is meant by risk ?

Answer 8

The degree of uncertainty or variability in year-to-year returns on an investment

Question 9

How would you know if a investment is a Ponzi scheme?

Answer 9

• Returns not paid from profits earned, but from money deposited by subsequent investors
• requires an increasing flow of funds from new investors to keep the scheme going
• promising clients high returns for little or no risks

Question 10

What is meant by diversification ?

Answer 10

A portfolio strategy designed to reduce risk by combining a variety of investments

Question 11

What are the limits to diversification ?

Answer 11

• market risk
• benefits of diversification become smaller as you add more assets
• the costs of diversification

Question 12

Name and explain the different portfolio revision strategies

Answer 12

• the active revision strategy : involves frequent changes in an existing portfolio
• the passive revision strategy : involves rare changes in portfolio

Question 13

Name some considerations when it comes to investment

Answer 13

• have realistic goals and needs
• have cash reserves
• avoid mental accounting
• Do not speculate
• consider inflation

Question 14

What are some examples of financial markets ?

Answer 14

• Money markets
• Capital markets
• Foreign exchange markets
• Derivatives markets

Question 15

What are primary markets ?

Answer 15

Financial markets where new shares and bonds are sold by companies to investors for the first time

Question 16

What are secondary markets

Answer 16

Enable owners of shares and bonds to sell their securities to other investors

Question 17

What are the advantages and disadvantages of ordinary shares s

Answer 17

A:
- they out-perform bonds and MM instruments over the long term
- easy to buy and sell
- information is easily available
- hundreds of companies to choose from

D:
- Risk is higher
- dividends are not guaranteed
- could loose original investment

Question 18

What are ordinary shares ?

Answer 18

Shares represents an ownership interest in the company

Question 19

What are bonds ?

Answer 19

Financial securities issued by companies, governments or municipalities when they want to raise debt finance/capital.

Question 20

What is the stock market index ?

Answer 20

A measure of stock market performance

Question 21

What are some of the disadvantages of unit trusts ?

Answer 21

• they attract significant management and administration fees
• fund managers do not always have the skills necessary to outperform the market and generate superior returns