EBU 1063 Smart Money Management Lecture 9 Quiz

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.