Week 2

Question 1

What is risk and return

Answer 1

The higher the risk the greater the return, the smaller the risk the smaller the return, for example spending money on a lottery ticket has a 99% chance of causing you to lose money but the 1% chance of return can bring you a huge amount of money. Similalry investing in safe account deposit banks can only grant you a little bit of money as a return. The best way to be financially smart is to take moderate risks and expect moderate returns.

Question 2

Risk and return

Answer 2

1. invest in savings fund- no risk but little return»1%
2. Invest private corporation-higher risk, corporation may go bankrupt unlikely»>6%
3. Doctor-asking for $40,000 investment with 8% interest return in future»>may lose money, inexperienced so likely-much higher risk
4. Brother in law- asks for $1000 investment in his company which he promises is going to be worth 1 million dollars down the road and you can get 50% of it»>High chance of him wasting the money and ruining your relationship»>lose money and relationship

The greater the risk the greater the reward and vice versa.

Question 3

Danone rethinks the idea of the firm

Answer 3

Danone’s CEO is focusing more on achieving more social justice, by creating more social organizations to help children in bangladesh, more attractive recylable cans and purchasing B-rated corporations. Investments and profits for this company have declined as a result but many investors are valuing the company’s efforts for social and environmental justice and choosing to invest.

Question 4

Automobile semiconductor shortage

Answer 4

Semiconductor suppliers or suppliers that supply electronic chips needed for electical devices are in mass shortage due to it’s high demand. This is negatively impacting the automobile industry because they initially placed fewer orders for chips assuming that sales would go down due to covid. Because sales unexpectedly had risen automobile manufacturers are unable to meet customer demands with the chips they have and are in line for more which could take some time considering other customers and the wait for production.

Question 5

Investment Grade Define:

Answer 5

This is what grade agencies like, Standard & Poor and Moody’s assigns to companies based on their credit rating and these include AAA, AA, BBB, or AAA, Aaa, Aa1, Baa1 etc. Based on the chances of the company paying back their investors. High investment grade companies are low risk, moderate ones struggle in economic downturns, and junk ones struggle even more during economic downturns.