Exam 1: An Introduction to Investments

The investor should specify the objectives of investing.

Portfolio assessment should include measures of both risk and return.

Trading implies

Diversification reduces

Risk

Liquidity refers to the ease of selling a stock for a capital gain.

The anticipated return and the realized return often differ.

Risk is the uncertainty that the realized return may differ from the expected.

Capital gains are the sole source of the return on an investment.

Financial investments are made in efficient markets. The existence of these markets suggests that

Investments are made in anticipation of a return.

Efficient markets suggests that investors will outperform the market consistently.

An informed investor can expect to consistently outperform the market.

Which of the following is not an investment in the layperson's general use of the term?

Stocks are initially sold in the "primary" market and subsequently traded in the "secondary" market.

Many investments such as stock have common characteristics including 1. existence of secondary markets 2. risk 3. potential for capital gains

Which of the following is an investment as defined by an economist?

Reasons for saving and investing include 1. need for funds to meet emergencies 2. retirement income 3. desire to leave an estate for children

The terms "investing" and "trading" refer to purchasing and selling securities.