Investment Types and Characteristics
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Questions and Answers

What is the primary purpose of an investment?

  • To purchase a small part of a company
  • To utilize it for personal consumption
  • To generate income and accumulate wealth (correct)
  • To earn minimal interest
  • Which type of investment is insured with PDIC up to P500,000?

  • Investment in Bonds
  • Investing in a Bank (correct)
  • Investment in Shares of Stocks
  • Managed Funds
  • What is the primary function of a managed fund?

  • To buy and sell real estate properties
  • To issue bonds to investors
  • To pool the money of various investors and invest in bonds, stocks, or a combination of various investments (correct)
  • To provide insurance coverage to investments
  • What is the definition of risk in finance?

    <p>A chance of loss</p> Signup and view all the answers

    What is an example of systematic risk?

    <p>A natural disaster such as a massive earthquake</p> Signup and view all the answers

    What is the type of risk that affects only a small number of assets?

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

    What type of event can negatively impact a firm's investors?

    <p>A major stockholder getting involved in a crime or scandal</p> Signup and view all the answers

    What is the primary goal of diversification in investment portfolios?

    <p>To minimize unsystematic risk</p> Signup and view all the answers

    What is the primary factor that determines an individual's risk tolerance?

    <p>Net worth and risk capital</p> Signup and view all the answers

    What is the purpose of conducting due diligence in investment research?

    <p>To compare investment products and assets</p> Signup and view all the answers

    What happens when an individual has a high net worth and substantial risk capital?

    <p>They are more likely to invest in high-risk investments</p> Signup and view all the answers

    What is risk capital?

    <p>Money that, if lost on an investment, won't impact the financial position and lifestyle</p> Signup and view all the answers

    Study Notes

    Types of Investments

    • Investing in a Bank: earns minimal interest, easily withdrawable, least risky, insured with PDIC up to P500,000
    • Investing in Bonds: like an IOU issued by a government or company with a fixed interest rate called a coupon
    • Investing in Shares of Stocks: buying a small part of a company, earning through dividends and capital gains as price increases
    • Investing in Managed Funds: an investment company pooling money from various investors, investing in bonds, stocks, or a combination
    • Investing in Property: earns through real property (real estate) or tangible personal property (gold, precious metals, artworks, etc.)

    Risks in Investment

    • Risk: a chance of loss, the chance that the actual return would be different from the expected return on an investment
    • Systematic Risk: wider in scope, affects the entire market, almost impossible to avoid (e.g., natural disaster, major political event, pandemic)
    • Unsystematic Risk: affects only a small number of assets, also referred to as specific risk (e.g., firm's employees on strike, major stockholder involved in a crime or scandal)

    Ways to Minimize Investment Risks

    • Determination of risk tolerance: understanding the type of risk, or the combination of types of risk, essential in reducing those risks
    • Net worth and risk capital: determining factors in risk tolerance, higher net worth and risk capital allow for higher risk tolerance
    • Conducting due diligence: researching investment instruments, checking history, earnings' growth, management team, and debt load

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    Description

    Learn about different types of investments, including those in banks, bonds, and more. Understand the characteristics of each investment type, such as risk levels, interest rates, and withdrawal options.

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