Real Asses: Natural resources and Land, Commodities

Question 1

What is the difference between real assets and financial assets?

Answer 1

Real assets are direct creators of opportunities to consume, for example a piece of land

Financial assets are conduits of opportunities to consume, for example a bond.

Direct Creators of opportunities, and

Conduits of opportunities

Question 2

3 types of land in anticipation of development

Answer 2

Paper Lots;

Blue top lots (process of development has begun);

Finished lots

Question 3

When investing in timberland, what are we investing in?

What is the main advantage of investing in timberland

Answer 3

Forest products

Returns exhibit low correlation with stock and bond returns

Question 4

What is farmland?

Answer 4

Unlike land intended for development and timberland, famland generates crop income.

Price of farmland is direcl correlated with commodity prices.

Question 5

Define intrastructure.

What are the 2 classifications of infrastructure

Answer 5

The underlying foundation of basic s.f.i.

(services,facilities, and institutions) upon which a society depends.

Economic and social

• Economic infrastructure includes energy, utilities, communications and transportation
• Social infrastructure includes education, health care facilities, prisons, parks and public housing

Question 6

Define intellectual property (IP)

Answer 6

• Assets are 2 types; Financial assets and Real assets
• Real assets are of 2 types: ones with physical form, ones without physical form (intangibles)
• Intangibles are of 2 types, the ones that can be owned (IP) and ones that cannot be owned.

In short, IP is an intangible asset that can be owned.

it includes copyrights, patents, trademarks and royalty rights related to creative works.

Question 7

What does smoothing of prices and returns to the price and return volatility?

Answer 7

It reduces prices and return volatility.

The asset looks less risky than it actually is.

Question 8

Why investment in timberland and farmland?

Answer 8

They have low correlation with other asset classes and hence there are diversification benefits.

Question 9

What is the main advantage of owning a commodity-linked note as opposed to a commodity futures contract?

Answer 9

Investors do not have to roll the underlying futures contracts, since that is carried out by the issuer of the notes.