CH 3: Investment Securities/Opportunities
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Questions and Answers

What is the primary purpose of the Johannesburg Securities Exchange (JSE)?

  • To provide a platform for trading in various financial instruments
  • To offer businesses a way to raise capital
  • To give investors an opportunity to own a share of businesses
  • All of the above (correct)

    • Which of the following is NOT a type of share traded on the JSE?

  • Bonus shares
  • Ordinary shares
  • Debenture shares (correct)
  • Preference shares

    • What is the primary characteristic of a unit trust?

  • Investments are managed by professionals
  • Investors can directly invest in businesses
  • Investors can only invest in bonds
  • Investors pool their money into a single fund (correct)

    • Which of the following is NOT considered an investment opportunity mentioned in the text?

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

    What is the primary difference between business investments and unit trusts?

    <p>Business investments involve direct ownership of a company, while unit trusts involve pooled investments managed by professionals</p> Signup and view all the answers

    Which type of share offers the highest level of ownership and control in a company?

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

    What is the primary purpose of investing in unit trusts?

    <p>To diversify investment risk</p> Signup and view all the answers

    Which investment opportunity mentioned in the text involves the highest level of risk?

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

    What is the primary benefit of investing in preference shares?

    <p>Preference shares offer higher returns than ordinary shares</p> Signup and view all the answers

    Which investment opportunity mentioned in the text is most suitable for individual investors with limited capital?

    <p>Investing in unit trusts</p> Signup and view all the answers

    What type of investment is suitable for individuals looking to preserve capital while earning interest?

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

    Which type of interest involves the interest on interest, leading to exponentially growing returns?

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

    What fundamental concept is crucial for making investment decisions according to the text?

    <p>Understanding Risk Tolerance</p> Signup and view all the answers

    Which investment option involves investing in startups or expanding businesses with high risk and potential returns?

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

    What is a characteristic of endowments and retirement annuities according to the text?

    <p>Low-risk options offering fixed returns</p> Signup and view all the answers

    Which factor plays a significant role in determining the viability and attractiveness of investment opportunities?

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

    What is a potential disadvantage of investing in managed portfolios according to the text?

    <p>Susceptibility to Mismanagement or Fraud</p> Signup and view all the answers

    What does the relationship between risk and return suggest in investment decisions?

    <p>Higher risks are usually associated with higher potential returns</p> Signup and view all the answers

    What is the purpose of understanding one's risk tolerance in investing?

    <p>To align investment choices with personal comfort levels for risk exposure</p> Signup and view all the answers

    What type of account is a low-risk savings option with slightly higher returns than a regular savings account but less liquidity?

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

    Which of the following statements about compound interest is true?

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

    What is the primary advantage of investing in government retail bonds?

    <p>Low risk and preservation of capital</p> Signup and view all the answers

    Which of the following is NOT a factor that should inform investment decisions according to the text?

    <p>Popularity of the investment</p> Signup and view all the answers

    What is the primary disadvantage of investing in venture capital?

    <p>High risk</p> Signup and view all the answers

    Which investment opportunity mentioned in the text is considered a low-risk savings option with slightly higher returns than a regular savings account?

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

    What is the primary purpose of understanding one's risk tolerance in investing?

    <p>To align investments with financial goals</p> Signup and view all the answers

    Which of the following investment opportunities is considered a long-term, low-risk option aimed at building wealth over time?

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

    What is the primary advantage of investing in managed portfolios according to the text?

    <p>Lowering risk through diversification</p> Signup and view all the answers

    Which of the following statements about the relationship between risk and return is true?

    <p>Higher risks are usually associated with higher potential returns.</p> Signup and view all the answers

    Which of the following statements about debentures is true?

    <p>They are fixed-interest securities issued by companies.</p> Signup and view all the answers

    What distinguishes unit trusts from direct business investments?

    <p>Unit trusts pool money into a single fund managed by professionals, unlike direct business investments.</p> Signup and view all the answers

    Which type of share provides its holders with priority in receiving dividends and assets during liquidation?

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

    What is the main function of the Johannesburg Securities Exchange (JSE) as mentioned in the text?

    <p>To facilitate the buying and selling of stocks and bonds</p> Signup and view all the answers

    What distinguishes founders' shares from ordinary shares?

    <p>Founders' shares do not have voting rights.</p> Signup and view all the answers

    Which investment opportunity mentioned in the text involves spreading risk across various securities managed by professionals?

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

    What is the primary purpose of investing in mutual funds according to the text?

    <p>To pool money into diversified securities managed by professionals</p> Signup and view all the answers

    Which type of investment opportunity caters well to individual investors with limited capital?

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

    What distinguishes founders' shares from preference shares?

    <p>Founders' shares offer voting rights, while preference shares do not.</p> Signup and view all the answers

    What differentiates unit trusts from mutual funds?

    <p>Unit trusts pool money into a single fund, while mutual funds invest in multiple securities.</p> Signup and view all the answers

    Which characteristic applies specifically to investing in ordinary shares?

    <p>Ordinary shares have voting rights in shareholder meetings.</p> Signup and view all the answers

    What is a key feature of investing in government retail bonds?

    <p>Government retail bonds provide guaranteed fixed returns.</p> Signup and view all the answers

    Which type of investment carries the highest level of uncertainty but also the potential for significant returns?

    <p>Investment in business ventures</p> Signup and view all the answers

    What is a common characteristic of bonus shares?

    <p>Bonus shares are provided in addition to existing shares.</p> Signup and view all the answers

    How do managed portfolios differ from direct investments?

    <p>Managed portfolios are actively managed by professionals, while direct investments are passive.</p> Signup and view all the answers

    What is a distinguishing feature of endowments and retirement annuities?

    <p>'Retirement annuity' is designed specifically for retirement savings.</p> Signup and view all the answers

    What role does the Johannesburg Securities Exchange (JSE) primarily play in the financial market?

    <p>JSE offers a platform for trading securities like stocks and bonds.</p> Signup and view all the answers

    What is a significant difference between preference shares and unit trusts?

    <p>Preference shares give priority in receiving dividends, while unit trusts distribute profits equally.</p> Signup and view all the answers

    What factor plays a crucial role in determining the overall viability and attractiveness of investment opportunities?

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

    Which investment type is characterized by fixed-interest securities issued by companies?

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

    What distinguishes 32-Day Notice Accounts from regular savings accounts?

    <p>Higher Liquidity</p> Signup and view all the answers

    Which investment opportunity provides a way to invest collectively but is susceptible to risks like mismanagement or fraud?

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

    What is the primary advantage of investing in endowments and retirement annuities?

    <p>Low Risk</p> Signup and view all the answers

    Which type of interest is calculated only on the principal amount and does not consider interest on interest?

    <p>Simple Interest</p> Signup and view all the answers

    What is the primary role of liquidity in investment decisions?

    <p>Ensuring Access to Funds</p> Signup and view all the answers

    Which investment opportunity provides the highest level of ownership and control in a business, but also carries the greatest risk?

    <p>Founders' shares</p> Signup and view all the answers

    What is the primary distinction between ordinary shares and preference shares?

    <p>Ordinary shares offer voting rights, while preference shares do not.</p> Signup and view all the answers

    Which of the following statements accurately describes the relationship between risk and return in investment opportunities?

    <p>Higher risk investments typically offer the potential for higher returns.</p> Signup and view all the answers

    Which investment opportunity involves pooling funds from multiple investors into a single portfolio managed by professionals, allowing for diversification and risk-sharing?

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

    What is the primary advantage of investing in endowments and retirement annuities, as mentioned in the text?

    <p>Tax benefits and long-term wealth accumulation</p> Signup and view all the answers

    Which investment opportunity involves lending money to a company or government entity in exchange for interest payments and the eventual return of the principal amount?

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

    What is the primary purpose of understanding one's risk tolerance when considering investment opportunities?

    <p>To align investment decisions with personal financial goals and risk appetite</p> Signup and view all the answers

    Which investment opportunity combines relatively low risk with the potential for substantial returns?

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

    What is the primary advantage of investing in managed portfolios over direct investments?

    <p>Lower risk through diversification</p> Signup and view all the answers

    Which investment factor is NOT mentioned in the text as crucial for making informed investment decisions?

    <p>Market capitalization</p> Signup and view all the answers

    What characteristic distinguishes compound interest from simple interest?

    <p>Compound interest is the interest on interest, leading to exponentially growing returns</p> Signup and view all the answers

    Which investment opportunity mentioned in the text is considered a low-risk savings option with slightly higher returns than a regular savings account?

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

    What is the primary purpose of understanding one's risk tolerance in investing?

    <p>To align investment choices with financial goals and risk appetite</p> Signup and view all the answers

    Which investment opportunity mentioned in the text is susceptible to the risks of mismanagement or fraud?

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

    What is the primary advantage of investing in government retail bonds?

    <p>Safe, low-risk preservation of capital while earning interest</p> Signup and view all the answers

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