Module 5- Investment

Question 1

is the accumulation of excess funds by intentionally spending less than
you earn.

Answer 1

savings

Question 2

is taking some of the money you are saving and
putting it to work so that it makes you even more money. Your goals and the time it will
take to reach those goals dictate the investment strategies you follow and the investment
alternatives you choose.

Answer 2

investing

Question 3

are shares of
ownership in a corporation, and bonds represent loans to companies and governments.

Answer 3

stocks

Question 4

the collection of multiple
investments in different assets chosen to meet your investment goals.

Answer 4

portfolio

Question 5

People invest for four reasons:

Answer 5

 To achieve financial goals, such as taking a vacation, purchasing a new car,
making a down payment on a home, financing a child’s education, or starting a
business
 To gain wealth and a feeling of financial security
 To increase current income
 To meet retirement income needs

Question 6

refers to the amount of the money that an organization or an individual
can afford to keep in some forms of investment for a definite length of period w/o
hampering his day-to- day operations.

Answer 6

investible cash

Question 7

refers to the amount of cash that an entity or an individual must have
taken care of unexpected cash requirements. (Extra funds)

Answer 7

liquidity buffer

Question 8

is an opinion on the financial soundness of an enterprise and its
capability to pay its debts & the corresponding Interest.

Answer 8

credit rating

Question 9

may refer to non- realization of expected earnings or less of capital

Answer 9

risk

Question 10

refers to the degree of risk that a person can afford to be exposed to and
still sleep soundly.

Answer 10

risk tolerance

Question 11

refers to spreading Investable funds to different investment Items, to
minimize risk from over exposure to only one kind of asset

Answer 11

diversification

Question 12

refers to the extreme of spreading the investable funds to so many
items of investment.

Answer 12

over diversification

Question 13

is money received while you own an investment. It is usually received
on aregular basis as interest, rent, or dividends.

Answer 13

current income

Question 14

occurs only when you actually sell the investment; it results from an
increase in the value of the initial investment. It is calculated by subtracting the total
amount paid for the investment (including purchase transaction costs) from the
higher price at which it is sold (minus any sales transaction costs).

Answer 14

capital gain

Question 15

can occur as well. For most investments, a tradeoff arises between capital
gains and current income. Investments with potential for high capital gains often pay little
current income, and investments that pay substantial current income generally have little
or no potential for capital gains. Long-term investors are usually willing to forgo current
income in favor of possibly earning substantial future capital gains.

Answer 15

capital losses

Question 16

is one’s general approach to tolerance for risk in
investments, whether it is conservative, moderate, or aggressive, given the financial goals
to be achieved. The more risk you take, within reason, the more you can expect to earn
and accumulate over the long term. Smart investors follow their investment philosophy
without wavering; they do not change course unless their basic objectives change.

Answer 16

investment philosophy

Question 17

you accept very little risk and are generally
rewarded with relatively low rates of return for seeking the twin goals of a moderate
amount of current income and preservation of capital.

Answer 17

conservative investment philosophy

Question 18

means that you do not want to lose any of the money you
have invested. In short, you could be characterized as risk averse. Conservative
investors focus on protecting themselves. They do so by carefully avoiding losses and
trying to stay with investments that demonstrate gains, often for long time periods
(perhaps for five or ten years). Tactically, they rarely sell their investments.

Answer 18

preservation of capital

Question 19

y seeks capital gains through slow and steady growth
in the value of their investments along with some current income. People seeking
moderate returns consider investing in dividend paying common stocks, growth and
income mutual funds, high-quality corporate bonds, government bonds, and real estate.

Answer 19

moderate investment philosophy

Question 20

chooses to strive for a very high return by accepting
a high level of risk. As such, you could be characterized as a risk seeker. Aggressive
investors primarily seek capital gains. People seeking exceptionally high returns consider
investing in common stocks of new or fast-growing companies, high-yielding junk bonds,
and aggressive-growth mutual funds.

Answer 20

aggressive investment philosophy

Question 21

carefully studies the economy, market
trends, and investment alternatives; regularly monitors these factors; and makes
decisions to buy and sell, perhaps three or four or more times a year, with or without the
advice of a professional.

Answer 21

active investor

Question 22

does not actively engage in trading of
securities or spend large amounts of time monitoring his or her investments.

Answer 22

passive investor

Question 23

Alternatives that have the potential for significant fluctuations in
return over short time periods, perhaps only days or weeks.

Answer 23

high-risk investments

Question 24

Property consisting of land; all structures permanently attached to that
land; and accompanying rights and privileges, such as crop and mineral rights. Examples:
residential housing units, commercial properties, residential lots, raw land.

Answer 24

real estate

Question 25

An investment company that combines the funds of investors who have
purchased shares of ownership in it and then invests that money in a diversified portfolio
of stocks and bonds issued by other corporations or governments.

Answer 25

mutual funds

Question 26

. Interest-bearing negotiable certificates of long-term debt issued by a corporation,
a municipality (such as a city or state), or the federal government.

Answer 26

bonds

Question 27

Shares of ownership in the assets and earnings of a business corporation

Answer 27

stocks

Question 28

also called financial risk, is the possibility
that the investment will fail, perhaps go bankrupt, and result in a massive or total loss of
one’s invested funds. Investigate thoroughly before investing.

Answer 28

business failure risk

Question 29

may be the most important concern for the long-term
investor. , also called purchasing power risk, is the danger that your
money will not grow as fast as inflation and therefore not be worth as much in the future
as it is today.

Answer 29

inflation risk

Question 30

The role of time affects all investments. The sooner your invested money is
supposed to be returned to you—the time horizon of an investment—the less the
likelihood that something could go wrong. The more time your money is invested, the
more it is at risk. For taking longer-term risks, investors expect and normally receive
higher returns.

Answer 30

time risk

Question 31

economic growth usually does not
occur in a smooth and steady manner. Instead, periods of expansion lasting three or four
years are often followed by contractions in the economy, called recessions, that may last
a year or longer. The profits of most industries follow the business cycle. Some
businesses do not experience business-cycle risk because they continue to earn profits
during economic downturns. Examples are gasoline retailers, supermarkets, and utility
companies.

Answer 31

business-cycle risk

Question 32

All investments are subject to occasional sharp changes
in price as a result of events affecting a particular company or the overall market
for similar investments.

Answer 32

market volatility risk

Question 33

Liquidity is the speed and ease with which an asset can be converted to
cash. You can convert your savings into cash instantly. You can sell your stocks
and bonds in one day, although it may take four days to have the proceeds available in
cash. Real estate is illiquid because it may take weeks, months, or years to sell.

Answer 33

liquidity risk

Question 34

is the risk that the return on a future investment
will not be the same as the return earned by the original investment.

Answer 34

reinvestment risk

Question 35

When you have to sell a certain asset quickly, it may not sell at
or near the market price. This possibility is referred to as. Selling
real estate in a hurry, for example, may require the seller to substantially reduce the
price in order to sell to a willing buyer.

Answer 35

marketability risk

Question 36

The Top 3 Financial Missteps in Investing
People slip up in investing fundamentals when they do the following:

Answer 36

1. Buy and sell more than they should
2. Diversify less than they should
3. Hold on to a bad investment long after evidence shows it was a bad decision