Investment Basic

Of all assets, real estate is the most liquid.

• True

• False

The change in an asset’s value can generate either positive or negative cash flow.

• True

• False

Risk and reward are the two fundamental principles of investing.

• True

• False

Some investments are evaluated based on their potential to produce cash flow, while others are evaluated based on their potential to increase in value or price.

• True

• False

Which of the following more accurately represents your actual financial gain from an investment?

• a) The nominal rate of return

• b) The real rate of return

• c) Internal rate of return

• d) None of the above

Return on Investment (ROI) is a basic performance measure that helps investors compare the return offered by one investment to returns offered by other investments.

• True

• False

Match each the following situations to the risk management strategy it represents.

i) Spreading your money across a variety of investment.

• a) Liquidity

• b) Capital Appreciation

• c) Cash Flow

• d) Diversification

Match each the following situations to the risk management strategy it represents.

An increase in the price or value of an asset.

• a) Liquidity

• b) Capital Appreciation

• c) Cash Flow

• d) Diversification

Match each the following situations to the risk management strategy it represents.

Controlling a large dollar value of an asset with a comparatively small amount of capital.

• a) Leverage

• b) Capital Appreciation

• c) Cash Flow

• d) Diversification

Match each the following situations to the risk management strategy it represents.

The money left after costs are deducted from income.

• a) Leverage

• b) Capital Appreciation

• c) Cash Flow

• d) Diversification