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Questions and Answers
Which asset class has the highest risk level?
Which asset class has the highest risk level?
- Bonds
- Cash
- Property
- Equity (correct)
What is the risk level associated with cash investments?
What is the risk level associated with cash investments?
- Moderate
- High
- Low (correct)
- Very High
What type of investment is described as interest-bearing securities issued to borrow money?
What type of investment is described as interest-bearing securities issued to borrow money?
Bonds
Property investments are considered low risk.
Property investments are considered low risk.
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What are the two primary reasons individuals purchase shares?
What are the two primary reasons individuals purchase shares?
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What can a mortgage bond help investors acquire?
What can a mortgage bond help investors acquire?
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Study Notes
Cash
- Cash investments are similar to bank deposits or money market accounts.
- Investors earn regular income through interest payments
- Cash represents the lowest risk investment.
Property
- Property is often the largest asset in a person's investment portfolio.
- Property values tend to keep pace with inflation.
- Mortgages can help investors purchase property they otherwise could not afford.
- Risks include location, political instability, and lack of liquidity.
Bonds
- Bonds are interest-bearing securities issued by governments or companies to borrow money.
- Bonds are essentially IOUs, promising to repay borrowed money with interest by a specific date.
- Bonds carry moderate risk.
Equity
- Equity represents ownership in a company.
- Businesses sell shares to raise capital.
- Investors purchase shares for two primary reasons:
- Capital Growth: Share values increase as the business grows.
- Dividends: A portion of company profits is distributed to shareholders, at the discretion of the company directors.
- Equity represents a high risk investment as there are no guarantees of profit.
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