Investment

Question 1

Application of money to earn more money

Answer 1

Investment

Question 2

Refers to utilization of resources in order to increase income or production output in the future

Answer 2

Investment in Economics

Question 3

Refers to any physical or tangible asset

Answer 3

Investment for economists

Question 4

Money utilized for buying financial assets

Answer 4

Investment for Finance professionals

Question 5

Most important feature of investment

Answer 5

High Market Liquidity

Question 6

Method used for evaluating the value of a financial investment

Answer 6

Valuation

Question 7

Types of Investments

Answer 7

1. Economic
2. Financial

Question 8

Undertaken with the expectation of increasing the current economy’s capital stock which consists of goods and services desired by the society

Answer 8

Economic Investment

Question 9

Money invested in financial investments is ultimately converted into physical assets

Answer 9

Financial Investments

Question 10

Reflect the progress pattern of the real market, financial market exist only as a support to the real market.

Answer 10

Perfect Financial Market

Question 11

Putting money into something with an expectation of gain without thorough analysis, without security of principal and without security of return.

Answer 11

Speculation/ Gambling

Question 12

Nature of Investment

Answer 12

1. Return
2. Risk
3. Safety
4. Liquidity

Question 13

Money made or lost on an investment over some period of time.

Answer 13

Return

Question 14

Primary Objective of an investment

Answer 14

Return

Question 15

Return may be received in what form?

Answer 15

Yield (Dividend/Interest) + Capital Appreciation (Sale Price– Purchase Price)

Question 16

Return depends on what?

Answer 16

1. Nature of Investment
2. Maturity Period
3. Host of other factors

Question 17

Refers to the loss of the principal amount of an investment

Answer 17

Risk

Question 18

Factors affecting Risk

Answer 18

1. Longer maturity period, higher risk
2. Government/ Semi- government, less risk
3. Debt instrument/ fixed deposit, low risk
4. Ownership instrument, more risk
5. Risk of degree of variability of return: Ownership > Debt
6. Tax Provisions

Question 19

Protection of the investor’s principal amount and expected rate of return

Answer 19

Safety

Question 20

Investment ready to convert into a cash available immediately in cash form.

Answer 20

Liquidity

Question 21

Characteristics of Investment

Answer 21

1. Safety
2. Income
3. Capital Growth

Question 22

Safety investment

Answer 22

Treasury Bills, CD, Commercial Paper, Banker’s Acceptance Slips, Fixed Income (Bond) Market

Question 23

Slightly riskier offer higher income return than AAA

Answer 23

A or Aa

Question 24

Medium risk less income than junk bonds

Answer 24

BBB

Question 25

Highest Potential bond yields available but at highest possible risk

Answer 25

Junk Bonds

Question 26

Offer low yield but a considerable opportunity for an increase in value

Answer 26

Growth Securities

Question 27

offers potential tax advantage because of their lower tax rate

Answer 27

Capital gains

Question 28

Objectives of Investment

Answer 28

1. Capital Appreciation 2. Current Income 3. Capital Preservation 4. Speculation 5. Tax Minimization 6. Marketability/ Liquidity

Question 29

It is the uncertainty associated with the returns from an investment that introduces a risk

Answer 29

Concept of Risk

Question 30

Elements of Risk

Answer 30

1. Systematic Risk 2. Unsystematic Risk

Question 31

Impact of these changes in system-wide

Answer 31

Systematic Risk

Question 32

Variability in returns occurs due to such Firm-specific factors

Answer 32

Unsystematic Risk

Question 33

Actual income from a project as well as appreciation in the value of capital

Answer 33

Return

Question 34

Components of Return

Answer 34

1. Periodic cash flows from the investment 2. change in price of the asset

Question 35

Total Return Formula

Answer 35

TR= (Cash Payment received + Price change in assets over the period)/ Purchase price of the asset

Question 36

Allows investors to reduce the overall risk associated with their portfolio but may limit potential returns

Answer 36

Diversification

Question 37

Kinds of investors

Answer 37

1. Retail/ Individual 2. Institutional

Question 38

Invests in securities and assets on their own, in smaller quantities

Answer 38

Retail/Individual investor

Question 39

Company/organization that invests money to buy securities or assets

Answer 39

Institutional investor

Question 40

The money you have now is worth more than the identical sum in the future due to its potential earning capacity

Answer 40

Time Value of Money

Question 41

Potential gain on interests where that money is received today and held in savings account

Answer 41

Opportunity costs

Question 42

Formula for future value

Answer 42

FV= Present Value x [1+ (interest rate/number of compounding periods per year)] (n + number of years)