EBU 1063 Smart Money Management Lecture 9 Quiz

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Questions and Answers

What is the primary purpose of setting investment goals?

To understand the primary and secondary securities markets

To allocate assets in the best manner

To protect and make money (correct)

To identify different sources of investment information

What is the key difference between investment and speculation?

Speculation involves derivatives securities, while investment does not

Investment is an asset that generates a return, while speculation's value depends solely on supply and demand (correct)

Investment depends solely on supply and demand, while speculation generates a return

Speculation is related to dividends or interest payments, while investment is not

What should an individual do before investing?

Know how much can be set aside to meet those goals

Understand how difficult it is to beat the market

Set investment goals and prioritize them (correct)

Trade securities using a broker

What kind of asset generates an income return usually in the form of dividends or interest payments?

Preferred stock (fixed dividend) Signup and view all the answers

What is an example of a derivative security?

SWAP Signup and view all the answers

What should an individual know before investing, as mentioned in the text?

The difference between investing and speculating Signup and view all the answers

What is the recommended time frame for short-term financial goals?

Within 1 year Signup and view all the answers

What is the primary difference between lending investments and ownership investments?

Ownership in a corporation Signup and view all the answers

What is the primary concern associated with illiquid assets?

Hard to sell off Signup and view all the answers

What does the risk-return trade-off imply?

High risk equals high return Signup and view all the answers

What does the real rate of return measure?

Nominal rate of return after adjustment for inflation Signup and view all the answers

Which factor greatly influences the historical levels of return according to the text?

Interest rate risk Signup and view all the answers

What is the potential consequence if an individual fails to accomplish their financial goals, as mentioned in the text?

Possibility of losing money Signup and view all the answers

What should an individual do to eliminate risk without affecting potential return?

Balance amount of risk with amount of return needed Signup and view all the answers

What should an individual do before starting their investment program, according to the text?

Make investing automatic Signup and view all the answers

What is the primary characteristic of lending investments as mentioned in the text?

Maturity date Signup and view all the answers

Study Notes

Setting Investment Goals

The primary purpose of setting investment goals is to provide direction and focus for an individual's investment decisions.

Investment vs Speculation

The key difference between investment and speculation is that investment involves a thorough analysis of the risk and potential return, whereas speculation involves a high degree of risk and uncertainty.

Pre-Investment Preparation

An individual should define their investment goals, assess their risk tolerance, and gather knowledge about the investment options before investing.

Income-Generating Assets

An asset that generates an income return usually in the form of dividends or interest payments is referred to as an income-producing asset.

Derivative Securities

An example of a derivative security is an option, which is a contract that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined price.

Key Knowledge before Investing

An individual should know their investment goals, risk tolerance, and time horizon before investing.

Time Frame for Short-Term Financial Goals

The recommended time frame for short-term financial goals is typically less than 5 years.

Lending vs Ownership Investments

The primary difference between lending investments and ownership investments is that lending investments involve a borrower-lender relationship, whereas ownership investments involve ownership of a portion of the asset.

Illiquid Assets

The primary concern associated with illiquid assets is the difficulty of quickly selling or converting them into cash without a significant loss of value.

Risk-Return Trade-Off

The risk-return trade-off implies that investments with higher potential returns often come with higher levels of risk, and vice versa.

Real Rate of Return

The real rate of return measures the return on an investment after adjusting for inflation.

Historical Levels of Return

The historical levels of return are greatly influenced by factors such as the economy, interest rates, and inflation.

Consequences of Unaccomplished Financial Goals

If an individual fails to accomplish their financial goals, they may face financial difficulties, such as reduced income or decreased standard of living.

Risk Elimination

An individual can eliminate risk without affecting potential return by diversifying their investment portfolio.

Pre-Investment Program

Before starting their investment program, an individual should assess their financial situation, define their investment goals, and gather knowledge about the investment options.

Lending Investments

The primary characteristic of lending investments is that they involve a fixed return in the form of interest payments.

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Description

Test your knowledge on investment basics, setting goals, managing risk, asset allocation, market beating, and securities trading in this quiz based on EBU 1063 Smart Money Management Lecture 9.