Midterm Topics - Part 1

Question 1

Investor can be:

Answer 1

(1) Individual
(2) Government
(3) Pension fund
(4) Corporation

Question 2

An individual who purchases small amount of securities for themselves, as opposed to an institutional investor.

Answer 2

Individual Investor

Question 3

Individual investors are also called_____

Answer 3

Retail investors or small investors

Question 4

Individual investor invests to earn a return from savings due to their______

Answer 4

Deferred consumption

Question 5

Individual investors want a rate of return that _____ them for the time, the expected inflation rate, and return’s uncertainty.

Answer 5

compensates

Question 6

Putting money into something with expectation of profit.

Answer 6

Investment

Question 7

In finance, investment means purchasing a financial product or another value item with an expectation of _______

Answer 7

Favorable future returns

Question 8

Investment is the commitment of funds saved from ______ with the hope that some benefits will be received.

Answer 8

Current consumption

Question 9

Two concept of investment

Answer 9

(1) Economic Investment
(2)Financial Investment

Question 10

the addition of the capital stock of the society - goods that are used in the production of other goods.

Answer 10

Economic Investment

Question 11

puts resources into something that may yield benefits over its initial cost.

Answer 11

Economic investment

Question 12

Plants and machines, Inventories, Human capital/labor, tuition reimbursement are example of ______

Answer 12

Economic Investment

Question 13

Allocates monetary resources to assets expected to yield gains or returns over a period of time.

Answer 13

Financial Investment

Question 14

A commitment of funds to derive future income in the form of interest, dividends, rent premiums, pension benefits, and the appreciation of the value of their principal capital

Answer 14

Financial Investment

Question 15

This type of investment may or may not yield a return.

Answer 15

Financial Investment

Question 16

Stocks, bonds, real estate, fixed deposits, insurance, etc are examples of _______

Answer 16

Financial investment

Question 17

Practice of engaging in risky financial transactions in an attempt to profit from short or medium term fluctuations in the market value of tradable good such as financial instrument, rather than attempting to profit from the underlying financial attributes embodied in the instrument, such as capital gains, interest or dividends.

Answer 17

Speculation

Question 18

Many speculators pay little attention to _______ of security and instead focus purely on ______

Answer 18

Fundamental value; price movements

Question 19

Speculators tend to buy assets to expect a profit from _______

Answer 19

Subsequent price changes and sales

Question 20

The role of speculators are:

Answer 20

• to absorb the excess risk that other participants do not want
• provide liquidity in the marketplace by buying or selling when no participants from other categories are available.

Question 21

Investment or Speculation:

Currency Trading

Reason:

Answer 21

Almost always speculation.

Trader is betting that the currency they have bought will bot fall in value against the currency they used to buy it

Question 22

Investment or Speculation:

Buying Shares

Reason:

Answer 22

Depends whether Investment or Speculation.

It is an investment of you believe that the company’s future earning per share justify the price you are paying for the shares.

It is a speculation in the belief that the price will soon rise and you can sell them for more than you paid them shortly.

Question 23

Investment or Speculation:

Trading Commodities

Reason:

Answer 23

Almost always just speculation.

Commodities are not investment as they do not generate revenue.

Traders cannot buy Commodities for their yields or intrinsic value.

Commodities are just usually purchased for their usefulness or speculative purposes.

Question 24

Investment or Speculation:

Buying property.

Reason:

Answer 24

Depends whether Investment or speculation.

It is an investment if you believe that the property’s returns can generate in the form of rent.

It is speculation if you are more concerned with what you believe your properties will be worth.

Question 25

Four Elements of Investments

Answer 25

(1) Return (2) Risk (3) Time (4) Liquidity

Question 26

Includes current income, and capital gains or losses, which arise from the increase or decrease of security price.

Answer 26

Returns

Question 27

The chance of loss due to variability of returns on investment. This cannot be measured, but it can be minimized or maximized.

Answer 27

Risk

Question 28

Offers several different courses of action. Determines the conditions and the period depending on an investor's objectives.

Answer 28

Time

Question 29

Refers to the ability of an investment to be converted into cash as and when required.

Answer 29

Liquidity

Question 30

Three Primary Investment Objectives

Answer 30

(1) Security (2) Liquidity (3) Yield

Question 31

Refers to security of capital

Answer 31

Security

Question 32

Cash readily available for emergencies or opportunities. Assets can be easily converted to cash.

Answer 32

Liquidity

Question 33

Refers to return, profit, reward earned from the investment.

Answer 33

Yield

Question 34

Eight Investment Attributes

Answer 34

(1) Rate of Return (2) Risk (3) Marketability (4) Taxes (5) Convenience (6) Safety (7) Liquidity (8) Duration

Question 35

The net gain or loss of an investment over a specified time period, expressed as a percentage of the investment's initial cost.

Answer 35

Rate of return

Question 36

Any uncertainty with respect to your investments that has the potential to negatively impact your financial welfare.

Answer 36

Risk

Question 37

It can be transacted quickly. It refers to saleability, how easily or quickly a security can be bought or sold in a secondary market.

Answer 37

Marketability

Question 38

Is the profit earned from investment such as real estate, and stock sales. Dividends from bonds are also some examples.

Answer 38

Investment income

Question 39

Investment income is ____ at a different rate tan earned income.

Answer 39

Taxed

Question 40

Is the profit from it interest payments, dividends, capital gains, and any other profits made through an investment vehicle.

Answer 40

Investment income

Question 41

It ensures that you have enough money to pay for your needs and wants without having to rely on someone else or having to work in your old age. People invest with the view to build their wealth.

Answer 41

Convenience

Question 42

Funds should be invested in safe ventures so that adequate rate of return can be achieved and maintain your capital grow modestly and still be liquid enough to convert to cash.

Answer 42

Safety

Question 43

The ability to convert an asset into cash easily without losing money against the market price.

Answer 43

Liquidity

Question 44

Is the time period where one expects to hold an investment for a specific period. The longer the time horizon, the more aggressive or riskier a portfolio an investor can build.

Answer 44

Duration/Investment Time horizon