Ch 3: Investment Securities/Opportunities

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?

Through diversification of investments. Signup and view all the answers

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

Venture Capital Signup and view all the answers

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

Government Bonds Signup and view all the answers

What should investors consider when choosing their investment options?

Financial goals, risk tolerance, and investment horizon. Signup and view all the answers

What is a common characteristic of endowments or retirement annuities?

They aim to build wealth over the long term. 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?

Johannesburg Securities Exchange (JSE) Signup and view all the answers

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

Preference shares Signup and view all the answers

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

It leads to exponentially growing returns. Signup and view all the answers

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

Stock price at purchase Signup and view all the answers

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

Unit Trusts Signup and view all the answers

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

They provide fixed returns with low risk. Signup and view all the answers

In investment terminology, what does ROI stand for?

Return on Investment Signup and view all the answers

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

Government Retail Bonds Signup and view all the answers

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

They are susceptible to mismanagement or fraud. Signup and view all the answers

What characteristic distinguishes venture capital from other investment options?

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

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

32 Day Notice Accounts Signup and view all the answers

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

At all times throughout the investment process. Signup and view all the answers

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

They provide security with lower returns. Signup and view all the answers

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

They provide diversified management from professionals. Signup and view all the answers

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

Endowments/Retirement Annuities Signup and view all the answers

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

Personal financial goals and risk tolerance. Signup and view all the answers

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

Business Investments Signup and view all the answers

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

Limited Shares Signup and view all the answers

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

Unit Trusts Signup and view all the answers

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

Interest on interest Signup and view all the answers

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

Investment term Signup and view all the answers

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

Retail Bonds Signup and view all the answers

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

Johannesburg Securities Exchange Signup and view all the answers

Dividends and interest from investments are examples of:

Income streams Signup and view all the answers

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

Insurance and assurance Signup and view all the answers

What is the characteristic feature of unit trusts?

Funds are pooled and managed by professionals Signup and view all the answers

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

It leads to exponentially growing returns Signup and view all the answers

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

Celebrity endorsements Signup and view all the answers

What distinguishes preference shares from ordinary shares?

They usually have limited voting rights Signup and view all the answers

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

The performance of selected investments Signup and view all the answers

What is a key characteristic of government retail bonds?

They provide safe, low-risk fixed returns Signup and view all the answers

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

Securities trading exchange Signup and view all the answers

What is a primary advantage of managed portfolios?

Diversification managed by professionals Signup and view all the answers

Which investment option typically involves a collective investment structure?

Mutual funds/Stokvels Signup and view all the answers

What characteristic is shared by both debentures and government bonds?

Both are considered low-risk investments Signup and view all the answers

Which factor is crucial for determining the appropriate investment strategy?

Investor's financial goals and risk tolerance Signup and view all the answers

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

Government bonds Signup and view all the answers

What do venture capital investments primarily aim to achieve?

High returns through investments in startups Signup and view all the answers

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

Inherent risk of mismanagement or fraud Signup and view all the answers

What is a common trait of endowments and retirement annuities?

Long-term, low-risk investment strategy Signup and view all the answers

Which investment type is likely to have the lowest liquidity?

32-Day Notice Accounts Signup and view all the answers

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

Potential for substantial returns from startups Signup and view all the answers

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

Endowments/Retirement Annuities Signup and view all the answers

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

High management fees Signup and view all the answers

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

Debentures Signup and view all the answers

What common trait do managed portfolios and mutual funds share?

Both are susceptible to market volatility Signup and view all the answers

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

Lower return on investment Signup and view all the answers

What fundamental consideration should investors assess regarding different investment types?

The inherent risk and return profile Signup and view all the answers

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

Preference shares have a higher claim on dividends. Signup and view all the answers

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

Venture capital Signup and view all the answers

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

Expected return on investment 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?

Compound interest Signup and view all the answers

Which option describes a key characteristic of unit trusts?

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

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

The income generated relative to the investment’s cost Signup and view all the answers

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

Both can be traded on the stock exchange. Signup and view all the answers

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

Providing funding to startups with high growth potential. Signup and view all the answers