Ch 3: Investment Securities/Opportunities
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Questions and Answers

What is the relationship between risk and return in investments?

  • Higher risks usually yield lower potential returns.
  • Lower risks guarantee higher returns.
  • There is no relationship between risk and return.
  • Higher risks are often associated with higher potential returns. (correct)

    • Which investment option is typically described as low-risk with fixed returns?

  • Mutual Funds
  • Stocks
  • Venture Capital
  • Debentures (correct)

    • What is a primary risk associated with investing in mutual funds or stokvels?

  • Guaranteed returns
  • High minimum investment requirements
  • High liquidity
  • Mismanagement or fraud risk (correct)

    • How do managed portfolios help reduce investment risk?

    <p>Through diversification of investments.</p> Signup and view all the answers

    What type of investment provides high risk and potential for substantial returns by investing in startups?

    <p>Venture Capital</p> Signup and view all the answers

    Which investment is typically known for providing lower returns but is considered secure?

    <p>Government Bonds</p> Signup and view all the answers

    What should investors consider when choosing their investment options?

    <p>Financial goals, risk tolerance, and investment horizon.</p> Signup and view all the answers

    What is a common characteristic of endowments or retirement annuities?

    <p>They aim to build wealth over the long term.</p> Signup and view all the answers

    What type of investments provides a way for individuals and businesses to raise capital through the buying and selling of financial instruments?

    <p>Johannesburg Securities Exchange (JSE)</p> Signup and view all the answers

    Which type of share generally provides a fixed dividend and has preference over ordinary shares during liquidation?

    <p>Preference shares</p> Signup and view all the answers

    What is a key characteristic of compound interest compared to simple interest?

    <p>It leads to exponentially growing returns.</p> Signup and view all the answers

    When making investment decisions, which of the following factors is NOT typically considered?

    <p>Stock price at purchase</p> Signup and view all the answers

    What type of investment scheme allows investors to pool their resources into a single fund managed by professionals?

    <p>Unit Trusts</p> Signup and view all the answers

    Which of the following reflects a key feature of government retail bonds?

    <p>They provide fixed returns with low risk.</p> Signup and view all the answers

    In investment terminology, what does ROI stand for?

    <p>Return on Investment</p> Signup and view all the answers

    Which investment option is known for being low-risk and suitable for individuals wanting to preserve capital?

    <p>Government Retail Bonds</p> Signup and view all the answers

    What is a potential disadvantage of investing in mutual funds or stokvels?

    <p>They are susceptible to mismanagement or fraud.</p> Signup and view all the answers

    What characteristic distinguishes venture capital from other investment options?

    <p>It involves high risk with potential for substantial returns.</p> Signup and view all the answers

    Which investment option is described as having slightly higher returns than a regular savings account?

    <p>32 Day Notice Accounts</p> Signup and view all the answers

    When should the choice of investment align with an investor's financial goals?

    <p>At all times throughout the investment process.</p> Signup and view all the answers

    Which of the following best describes the nature of government bonds?

    <p>They provide security with lower returns.</p> Signup and view all the answers

    How do managed portfolios help reduce the risk associated with investments?

    <p>They provide diversified management from professionals.</p> Signup and view all the answers

    Which kind of investment option is primarily considered a long-term strategy for building wealth?

    <p>Endowments/Retirement Annuities</p> Signup and view all the answers

    What factor is essential for investors to consider when navigating financial markets?

    <p>Personal financial goals and risk tolerance.</p> Signup and view all the answers

    What type of investment allows individuals to buy shares and receive dividends?

    <p>Business Investments</p> Signup and view all the answers

    Which of the following is NOT a type of share mentioned in the content?

    <p>Limited Shares</p> Signup and view all the answers

    Which investment option is characterized by pooling funds managed by professionals?

    <p>Unit Trusts</p> Signup and view all the answers

    Compound interest differs from simple interest in that it accounts for:

    <p>Interest on interest</p> Signup and view all the answers

    What is a primary consideration when assessing the risk of an investment?

    <p>Investment term</p> Signup and view all the answers

    Which of these is considered a safe, low-risk investment suitable for individuals seeking to preserve capital?

    <p>Retail Bonds</p> Signup and view all the answers

    The manner in which businesses raise capital through buying and selling financial instruments takes place on which exchange?

    <p>Johannesburg Securities Exchange</p> Signup and view all the answers

    Dividends and interest from investments are examples of:

    <p>Income streams</p> Signup and view all the answers

    What encompasses a broad spectrum of opportunities beyond stocks and bonds?

    <p>Insurance and assurance</p> Signup and view all the answers

    What is the characteristic feature of unit trusts?

    <p>Funds are pooled and managed by professionals</p> Signup and view all the answers

    Which of the following is a distinguishing factor of compound interest over simple interest?

    <p>It leads to exponentially growing returns</p> Signup and view all the answers

    Investment decisions should be informed by various factors. Which of the following is NOT typically a consideration?

    <p>Celebrity endorsements</p> Signup and view all the answers

    What distinguishes preference shares from ordinary shares?

    <p>They usually have limited voting rights</p> Signup and view all the answers

    Which factor affects the return on investment (ROI) in a significant way?

    <p>The performance of selected investments</p> Signup and view all the answers

    What is a key characteristic of government retail bonds?

    <p>They provide safe, low-risk fixed returns</p> Signup and view all the answers

    What is an example of an investment that typically allows businesses to raise capital?

    <p>Securities trading exchange</p> Signup and view all the answers

    What is a primary advantage of managed portfolios?

    <p>Diversification managed by professionals</p> Signup and view all the answers

    Which investment option typically involves a collective investment structure?

    <p>Mutual funds/Stokvels</p> Signup and view all the answers

    What characteristic is shared by both debentures and government bonds?

    <p>Both are considered low-risk investments</p> Signup and view all the answers

    Which factor is crucial for determining the appropriate investment strategy?

    <p>Investor's financial goals and risk tolerance</p> Signup and view all the answers

    Which investment type is described as providing lower returns but being secure?

    <p>Government bonds</p> Signup and view all the answers

    What do venture capital investments primarily aim to achieve?

    <p>High returns through investments in startups</p> Signup and view all the answers

    Which of these is a notable risk associated with mutual funds or stokvels?

    <p>Inherent risk of mismanagement or fraud</p> Signup and view all the answers

    What is a common trait of endowments and retirement annuities?

    <p>Long-term, low-risk investment strategy</p> Signup and view all the answers

    Which investment type is likely to have the lowest liquidity?

    <p>32-Day Notice Accounts</p> Signup and view all the answers

    What is a primary benefit of venture capital investments over traditional investments?

    <p>Potential for substantial returns from startups</p> Signup and view all the answers

    Which investment option is primarily geared towards long-term wealth accumulation?

    <p>Endowments/Retirement Annuities</p> Signup and view all the answers

    What is a significant disadvantage associated with investing in mutual funds?

    <p>High management fees</p> Signup and view all the answers

    Which investment type offers fixed interest but could entail issuer-related risks?

    <p>Debentures</p> Signup and view all the answers

    What common trait do managed portfolios and mutual funds share?

    <p>Both are susceptible to market volatility</p> Signup and view all the answers

    Which characteristic is often associated with government bonds compared to corporate debentures?

    <p>Lower return on investment</p> Signup and view all the answers

    What fundamental consideration should investors assess regarding different investment types?

    <p>The inherent risk and return profile</p> Signup and view all the answers

    What distinguishes preference shares from ordinary shares in terms of dividend rights?

    <p>Preference shares have a higher claim on dividends.</p> Signup and view all the answers

    Which of the following investment options typically offers the highest potential for returns?

    <p>Venture capital</p> Signup and view all the answers

    Which factor is least likely to affect the liquidity of an investment?

    <p>Expected return on investment</p> Signup and view all the answers

    What type of interest leads to returns that grow exponentially over time due to interest being calculated on previously accrued interest?

    <p>Compound interest</p> Signup and view all the answers

    Which option describes a key characteristic of unit trusts?

    <p>They pool money from multiple investors into a single managed fund.</p> Signup and view all the answers

    When evaluating an investment's return on investment (ROI), which aspect is generally most significant?

    <p>The income generated relative to the investment’s cost</p> Signup and view all the answers

    Which characteristic is common to both equities and bonds in the context of investment?

    <p>Both can be traded on the stock exchange.</p> Signup and view all the answers

    Which of the following best defines what venture capital primarily focuses on?

    <p>Providing funding to startups with high growth potential.</p> Signup and view all the answers

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