Q.1. What is Investment?
Investments means employment of funds in Financial or Real assets with an element of risk involved in respect of return and the principal amount with the hope of deriving future benefits.
Q.2. Name the types of assets with examples in which investment can be made.
(i) Financial assets: e.g. Equity Shares, Debentures, provident Fund investment, Insurance policies etc.
(ii) Real assets: e.g. Real estate, Gold, silver, Stamps, coins etc.
Q.3. What is Speculation?
Short term investments are known as speculation. The speculator makes use of the fluctuations in the movement of price of an asset and has high risk. There are mainly two categories of speculators in stock market namely bulls and bears.
Q.4. Why investment is necessary?
(i) To earn above inflation.
(ii) To get tax advantage.
(iii) To get return on investment.
(iv) To create collateral (additional) security for future needs.
Q.5. What do you mean by Time value of money?
Time value of money is a concept that addresses the way the value of money changes over a period of time. Finding Amount from A=P(1 + r/100)n is the future value of money and finding principal from the given formula is the present value of money.
Q.6. What is Systematic Investment Plan (SIP)?
Systematic Investment Plan is the investment of a fixed amount in any of the financial assets at regular interval. It is the the simple and timely investment strategy for accumulating wealth and capital appreciation.
Q.7. What is the present value of Rs 121 to be received after 2 years, when discounted at 10% p.a?
We know that Amount=Principal(1+r/100)2
Or, 121=Principal (1+10/100)2
Or, 121= Principal(1.10)2
Or, 121/(1.10)2 = Principal
Or, 121/1.21 = Principal
Or, Principal = 100.