Investment securities

Question 1

Functions of the JSE?

Answer 1

• Acts as a link between investors and public companies.
• Shares are valued and assessed by experts.
• Regulates the market for dealing with shares.
• Provides protection for investors.
• Encourages short-term investment.

Question 2

Factors that should be considered when making investment decisions?

Answer 2

RRIPTL

Question 3

Explain Returns in investment?

Answer 3

• High risk investments yield higher returns.
• direct link between risk and return.

Question 4

Explain risk in terms of investment?

Answer 4

• Shares have low/medium risk over a longer investment period.
• Shares with higher risks have a greater potential for higher returns.

Question 5

How does Inflation rate affect investments?

Answer 5

• The return on investment should be higher than the inflation rate.

Question 6

What is Liquidity in terms of investment?

Answer 6

• An amount could be invested in a type of investment that can easily be converted to cash.
• It is used to describe the ease and speed with which investors can convert an investment into cash.

Question 7

Explain taxation in investments?

Answer 7

• A good investment will yield high after-tax returns.
• Tax rates are not necessarily the same for different investments.

Question 8

Types of investments?

Answer 8

M M 32 DBE

Question 9

What is Stokvel(Mutual fund)?

Answer 9

It is an informal savings scheme to which a relatively small group of people are contributing.

Question 10

Risks of Stokvel?

Answer 10

● Schemers who claim to be running stokvels may be running illegal pyramid schemes and pay-outs may not be possible as cash has run out/members may lose their savings.
● Money in a savings account is a safe investment, but with low interest rates/the returns are low.

Question 11

Explain ‘Managed portfolio’?

Answer 11

● An investor instructs a financial advisor to manage various investments/assets in one portfolio.
● If the portfolio does not perform as expected, the portfolio may be changed with/without informing the investor.

Question 12

What is a 32 day Notice account?

Answer 12

● Money is invested at a fixed rate, although withdrawals may be made provided the bank is given 32 days’ notice
● It earns more interest than a current /cheque /savings account

Question 13

What is a debenture?

Answer 13

Debt issued to raise borrowed capital from the public without collateral.

Question 14

Explain Venture capital

Answer 14

Venture capital is given by an investor to start up or expand a business in return to have a share in the new/expanded business.

Question 15

Explain the reason for Life insurance or Retirement Annuity

Answer 15

To provide for a future expenses and give peace of mind to the dependants of the insured.

Question 16

Risks of stokvel?

Answer 16

● Schemers who claim to be running stokvels may be running illegal pyramid schemes and pay-outs may not be possible
● In a savings account - low interest rates/the returns are low.

Question 17

Risks of Managed portfolio?

Answer 17

● Risk is lower over a longer term/period.
● Investments are made in various sectors /companies, therefore the risk is spread and better managed by the portfolio manager.

Question 18

Risks of 32-Day Notice Accounts?

Answer 18

● Low risk, as investment plus interest will be paid out on the maturity date.
● Interest rate may fluctuate with market conditions

Question 19

Risk of Debentures?

Answer 19

● Debentures have a low risk as they need to be paid back.
● Companies are liable to repay the amount of the debenture plus interest, which decrease the risk for the investor.

Question 20

Risk of business venture/venture capital?

Answer 20

● High risk for the investor(s) if research is not properly done.
● Inexperienced business owners that make wrong business decisions may experience big losses

Question 21

Risks of Endowment/Life insurance policies/Retirement Annuities?

Answer 21

● Low risk, as the insured amount will be paid out regardless of circumstances.
● Only the closing down/bankruptcy of the insurance company may result in losing the monthly contributions made up to the close down date.

Question 22

The personal assets of partners can be sold to pay off the debts of the partnership due to bankruptcy. This refers to … liability.

Answer 22

Unlimited liability