7a. what does "return" mean in connection with investments ?

7b. how is return usually expressed?

7c. what is the one thing that anyone must do before making an investment ?

7d. why do higher tidi investments usually have higher returns ?

Chapter 125 student handout + T T T om Add Page Insert Table Chart Text Shape Media Comment the specified length of time results in a penalty (a fee of money). You could decide to put $1,000 into a certificate of deposit at 3% for one year. If interest rates decline during that year, you would still earn the 3%; however, if interest rates increase, you are still tied to the same 3% - unless interest rates increase enough that it is worth paying the penalty to remove the money and reinvest it elsewhere. Return Investments pay a return on the money invested. This is the profit (or yield) from having made that investment. This return is frequently expressed as a percentage on some investments, but may be unknown or variable on other investments. One thing that anyone must do before making an investment is to evaluate the risk of making that investment. For example, if you have two opportunities to invest with a 3% rate of return, but one is very low risk and the other is very high risk -- which would you pick? The lower risk one, of course. You will be more certain of receiving the original investment plus its return. Thus, higher risk investments usually have higher returns to compensate for the higher risk. Diversification No investor should choose an investment option whose risk level is higher than he or she can tolerate. Some people are very risk averse, while others are more risk tolerant. All investors should be aware of the degree to which they can tolerate risk. (continued) tvo A 7. a. 8 . a time lag between when an investment is madde and when the profits on the investment are paid. b. Why does time risk exist? when we have already invested in a particular alternative there is time difference when the investment is made and when the return is realized on such investment during this time we cannot invest this money in any other alternative and if we do withdraw this money an amount of fee is deducted for withdrawing. What does "return" mean in connection with investments? How is return usually expressed? What is the one thing that anyone must do before making an investment? d. Why do higher risk investments usually have higher returns? What should all investors be aware of, in terms of risk? 9. What should an investor's strategy be based on? 10. What are the three main strategies for investing? (Name and descriptions.) 11. How can you reduce risks in investing? 12. Why does diversification make it more difficult to get a high return? 13. Based on the information in the graph, what is the relationship between the risk involved in an investment and the potential return on that investment? (That is, if the risk is higher, what happens to the return? If the risk is lower, what happens to the return?) 14. Based on the information in the graph, how does the retum potential on common stock compare to that on passbook savings? ty