Questions to Ponder

1. What factors affected your decision in choosing between options? What does it say
about your risk tolerance?

2. Based on the assessment, how does risk tolerance affect the type of investment a
person chooses?

3. Aside from risk factors, what other variables will you consider when investing?
Answer’s:

1. Factors that can affect the decision in choosing between options include the potential
return on investment, the level of risk involved, the time horizon for the investment,
and personal financial goals. If an individual is willing to take on higher risk for the
potential of higher returns, it indicates a high risk tolerance. On the other hand, if an
individual prefers safer investments with lower potential returns, it suggests a low risk
tolerance.

2. Risk tolerance significantly impacts the type of investment a person chooses.

Individuals with high risk tolerance may be more inclined to invest in stocks, real
estate, or start-up businesses, which offer high potential returns but also come with
higher risk. In contrast, individuals with low risk tolerance might prefer safer
investments, such as bonds or money market funds, which offer lower returns but also
carry less risk.

3. Aside from risk factors, other variables to consider when investing include the
investment’s liquidity, the time horizon for when you’ll need the money, the potential
return on investment, tax implications, and how the investment fits into your overall
financial plan. It’s also important to consider diversification, or spreading investments
across a variety of assets to reduce risk.
 1. RELATE THE OBJECTIVES OF INVESTING WITH THE VARIOUS FORMS OF
INVESTMENT RETURNS. HOW CAN THESE FACTORS HELP IN INVESTING
DECISIONS?

Answer:
Wealth accumulation, income generation, saving for specific goals, and preserving capital are
the objectives of investing. Wealth accumulation involves capital gains like stocks or real
estate, which increase in value over time. Income generation involves dividends or interest-
paying investments, such as stocks or bonds. Saving for specific goals involves compound
interest investments like mutual funds or retirement accounts, which grow over time due to
reinvestment. Preserving capital involves stable returns with low risk. Understanding these
factors helps make informed investment decisions.

2. WHAT ARE THE DIFFERENCES BETWEEN INVESTMENT AND GAMBLING?

Answer:
Investment and gambling differ in risk and reward, time frame, value creation, predictability,
and emotional component. Investments involve calculated risks and potential rewards, while
gambling is a short-term activity with quick outcomes. Investments contribute to the
economy by providing capital for expansion and innovation, while gambling is a zero-sum
game. Understanding these differences can help individuals make informed decisions about
investing and managing their financial goals.

3. and 4. HOW CAN THE TYPE OF RISK INFLUENCE THE INVESTMENT

DECISION OF AN INDIVIDUAL?

Answer:
Risks significantly impact an individual’s investment decisions, affecting their potential
return and financial goals. Market risk, credit risk, liquidity risk, inflation risk, and interest
rate risk are some of the types of risks that can affect investment decisions. Market risk
involves the entire market declining, affecting almost all investments. Credit risk involves
bond issuer defaulting on payments, affecting investors’ choices. Liquidity risk involves the
inability to buy or sell an investment quickly without affecting its price. Inflation risk reduces
purchasing power, so investors may choose investments that increase in value over time.
Interest rate risk involves changes in interest rates, affecting investments. Understanding
these risks helps investors make informed decisions that align with their risk tolerance and
goals.

Identification: Identify what is being describe

1. It is the type of investment risk caused by the inability of a company to pay its debts
or meet its financial obligations.

Answer: Credit Risk

2. It is the type of risk associated with an asset that is difficult to sell without Lowering
its price.

Answer: Liquidity Risk

3. It is a type of country risk caused by changes in government leadership and instability.

Answer: Political Risk

4. It refers to the strategy of investing in various asset classes.

Answer: Diversification
 5. It is the type of risk associated with ups and downs due to an unsuccessful Business
model.

Answer: Business Risk