Investment Basics for Grade 7

What does CAGR stand for?

• Compound Annual Growth Rate

• Continuous Annual Growth Rate

• Cumulative Annual Growth Rate

• Compound Average Growth Rate

How is CAGR calculated?

• CAGR = (Ending Value - Beginning Value) * 100

• CAGR = (Ending Value / Beginning Value) * 100

• CAGR = (Ending Value / Beginning Value)^(1/n) - 1

• CAGR = (Ending Value - Beginning Value) / Beginning Value

What are the different types of investments?

• artwork

• jewelry

• cars

• stocks, bonds, real estate, mutual funds, exchange-traded funds (ETFs), commodities

Explain the concept of bonds in investment.

• Bonds are a type of investment where an investor can withdraw money at any time without penalties.

• Bonds are a type of investment where an investor buys shares of a company.

• Bonds are a type of investment where an investor receives ownership of a physical asset.

• Bonds are a type of investment where an investor loans money to an entity for a fixed period at a fixed interest rate.

What are mutual funds and how do they work?

• Mutual funds are individual stocks purchased by investors directly from the stock market.

• Mutual funds are only available to institutional investors and not retail investors.

• Mutual funds guarantee a fixed rate of return to investors.

• Mutual funds are investment vehicles that pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities. They are managed by professional fund managers who make investment decisions on behalf of the investors. Mutual funds work by selling shares to investors, who then own a portion of the fund's holdings. The value of the shares fluctuates based on the performance of the underlying investments.

Distinguish between equities and bonds as investment options.

• Equities and bonds both offer fixed interest payments

• Equities are debt securities, while bonds offer ownership in a company

• Equities offer ownership in a company with potential for higher returns and risk, while bonds are debt securities providing fixed interest payments and return of principal at maturity.

• Equities provide ownership in a company, while bonds offer potential for higher returns

What is ROI in investment?

• Risk of Investment

• Revenue from Operations

• Return on Investment

• Rate of Inflation

Why is CAGR important in evaluating investments?

• CAGR is irrelevant in investment evaluation

• CAGR provides a single rate that represents the geometric progression of an investment's value over a specified period of time, accounting for the effect of compounding.

• CAGR does not account for compounding effects

• CAGR only considers the initial investment amount

Give an example of calculating CAGR.

• CAGR is calculated by taking the square root of the growth rate

• For example, if an investment grows from $1,000 to $2,000 over 5 years, the CAGR would be ((2000 / 1000)^(1/5)) - 1 = 0.1487 or 14.87%

• Using the formula (final value - initial value) / initial value

• Calculating CAGR by dividing the final value by the initial value

Name one type of low-risk investment.

• cryptocurrency

• online gambling

• day trading

• high-yield savings account