16 Questions
What is the definition of an investment?
An investment is the current commitment of resources for a period of time in the expectation of receiving future resources that will compensate the investor for the time the resources are committed, the expected rate of inflation, and the uncertainty of future payments.
What are the key factors that an investor expects to be compensated for in an investment?
The investor expects to be compensated for the time the resources are committed, the expected rate of inflation, and the uncertainty of future payments.
What are the main considerations for an investor when making an investment?
The main considerations for an investor when making an investment are the commitment of resources, the expectation of future compensation, and the factors of time, inflation, and uncertainty.
What is the purpose of making an investment?
The purpose of making an investment is to receive future resources as compensation for the current commitment of resources, considering factors such as time, inflation, and uncertainty.
What are the components of the required rate of return?
The components of the required rate of return are income, capital preservation, and capital appreciation.
Why is the real risk-free rate usually positive?
The real risk-free rate is usually positive because savers need compensation for giving up the right to consume today, and borrowers are willing to pay to be able to spend more than their current resources allow.
What is the Fisher equation used for?
The Fisher equation is used to calculate the nominal interest rate, real interest rate, and expected inflation rate in investments.
Can interest rates be negative?
Yes, interest rates can be negative, as evidenced by ex-post real rates, ex-ante real rates, and nominal rates in certain situations.
What is the purpose of the Fisher equation?
The Fisher equation compensates investors for delaying consumption and for the loss of purchasing power caused by inflation.
Provide an example of when ex-post real rates can be negative.
An example of when ex-post real rates can be negative is when the actual rate of inflation exceeds the real rate of interest earned on an investment.
Can ex-ante real rates be negative?
Yes, ex-ante real rates can be negative, as seen in situations where the expected rate of inflation exceeds the nominal interest rate.
Why might nominal rates be negative?
Nominal rates can be negative due to concerns about very weak world growth and deflation, as evidenced by the unprecedented situation in recent years.
What is deflation?
Deflation is the general decline in prices for goods and services, causing an increase in the purchasing power of money.
What is the real risk-free interest rate?
The real risk-free interest rate is the exchange rate between future consumption and present consumption, representing the 'pure' rental rate on money in the absence of inflation and risk.
Why do investors need compensation from three sources?
Investors need compensation from three sources - the pure or real interest rate, inflation protection, and risk - in order to defer consumption and make investment decisions.
What is the purpose of the Fisher equation in relation to interest rates?
The Fisher equation is used to calculate the nominal interest rate, real interest rate, and expected inflation rate in investments, providing insights into the effects of inflation on interest rates.
This quiz covers the basics of investments and asset allocation, including market updates, market returns, focus on U.S. markets such as NASDAQ, DOW, and S&P 500, futures trading, interest rates, commodities, and Bitcoin. It also delves into trading options like buying oil or Bitcoin on Plus 500 and selling shares from Commsec International. The quiz explores the potential of Bitcoin as the currency of the future.
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