Savings/Investment Part 4

Question 1

What are the benefits of foreign investment in Australia?

Answer 1

Provides capital to finance new industries, boosts infrastructure, creates employment opportunities

Question 2

How is simple calculated?

Answer 2

Interest on the original amount invested

Question 3

How is compound interest calculated?

Answer 3

Interest earned is added to the original investment, so the interest is calculated on the current balance of the investment

Question 4

What is the principle?

Answer 4

The original amount of money invested before interests

Question 5

What is risk?

Answer 5

The opportunity of losing your investment

Question 6

What is an example of high risk investment?

Answer 6

Investing large amounts of money into shares

Question 7

What is an example of low risk investment?

Answer 7

Investing money into a savings account

Question 8

What is return?

Answer 8

The financial gain you receive from your investments, such as the prices of your shares increasing

Question 9

What is the correlation between risk and reward?

Answer 9

Higher risk can lead to higher returns, whereas lower risk leads to lower returns, however the higher the risk the less likely the return is to occur

Question 10

What does the term gearing mean?

Answer 10

Borrowing money to invest

Question 11

What is negative gearing?

Answer 11

When it costs you more to spend on your investment rather than the return you receive from your investment

Question 12

What does a high level of indebtedness do to the economy?

Answer 12

Makes the economy vulnerable to external shocks, because it must already pay off the debt it owes

Question 13

What are the costs associated with investing in rental properties?

Answer 13

The cost of the property itself, interest on the mortgage and maintenance of the house

Question 14

What are the benefits associated with investing in rental properties?

Answer 14

It is an extra source of income, provides capital gain and an increase in your borrowing power

Question 15

What is a line of credit?

Answer 15

A pre-set amount of credit extended to a borrower, who can borrow against assets with regular repayments every month or so

Question 16

What are the benefits of a line of credit?

Answer 16

It allows for a short-term fix to receive funds

Question 17

What is the long-term result of a lie of credit?

Answer 17

It places you in more debt and gives you money which you have not already earned

Question 18

What is housing affordability?

Answer 18

The ability to buy a house and all the expenses involved with it, in relation to your disposable income, without going into debt

Question 19

Why has demand for housing increased?

Answer 19

Population increase, investing opportunities and lower interest rates

Question 20

What is the current median house price in Melbourne and Australia

Answer 20

Melbourne: $850,000
Australia: $810,000

Question 21

Why are households more vulnerable to shifts in the interest rates?

Answer 21

More people are paying off mortgages to afford the expensive costs of housing, therefore changes in interest rates will change the amount of money they must pay for their mortgages

Question 22

How can people minimise their debt?

Answer 22

Not making purchases with credit cards, investing smartly and making a clear and concise budget