Q7A - Problem Set 7 - Solutions 1. Describe the two...

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Problem Set 7 - Solutions 1. Describe the two different styles of making money. What is the distinguishing difference between the two? What are the primary objectives of investing? Investing and Speculating Investing is generally considered a medium to long-term undertaking and investors expects relatively stable and predictable returns (within an expected range of longer term outcomes). Speculating is usually viewed as the purchase or sale of securities over a short term period of time where returns are much more volatile and less predictable. It is seen as a much more risky activity than investing. The primary objectives of investing would include: wealth creation over time; to invest in assets with reasonable returns with as low a risk as possible; to create a diversified investment portfolio, and to secure a comfortable retirement income stream. 2. Why would an individual want to invest in bonds? Bonds are medium to long term debt instruments of governments and organisations (companies, authorities). They are usually publicly traded and offer returns and risks which vary according to the reputation and reliability of the issuer (“credit rating”). Government bonds offer security and reasonable returns, but these can suffer in times of
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This note was uploaded on 12/06/2011 for the course ECON 101 taught by Professor Shen during the Three '11 term at Monash.

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Q7A - Problem Set 7 - Solutions 1. Describe the two...

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