Some savings and investment choices have the potential for higher earnings. However, these may also be difficult to convert to cash when you need the funds. Thisproblem refers to:Multiple Choiceinflation risk.Ointerest rate risk.Oincome risk.personal risk.

The problem described in the image refers to the risk of not being able to convert investments into…

Answered: Some savings and investment choices…

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter11: Risk-adjusted Expected Rates Of Return And The Dividends Valuation Approach

Section: Chapter Questions

Problem 3QE

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Similar questions

A borrower who takes out a loan usually has better information about the potential returns and risks of the investment projects he plans to undertake than the lender does. This inequality of information is called O a. adverse selection. b. moral hazard. C. asymmetric information. O d. noncollateralized risk.
The house money effect is used to explain the tendency of investors to take higher risks when reinvesting profit earned than when they are investing their savings or initial capital Select one:TrueFalse
Investors require a _____ return as compensation for taking ____ risk. A) higher, margin B) higher, more C) higher, convexity D) lower, margin E) lower, more F) lower, convexity
When comparing NPV and IRR, which is incorrect? With NPV, the discount rate can be adjusted to take into account increased risk and the uncertainty of cash flows With IRR, cash flows can be adjusted to account for risk NPV can be used to compare investments of various size or magnitude Both NPV and IRR can be used for screening decisions
Which of the following is TRUE about liquidity? a. All assets should be put in liquid asset so that it is easy to use when necessary b. In most of the cases, the more liquid asset provides the lower return c. Investors should not care about liquidity in order to have a balanced portfolio investment d. Liquidity requirement does not have any impact on the return.
Keeping your funds in liquid assets is riskier than keeping them in liquid assets and therefore investors require a higher expected rate of return on liquid assets.
The risk-adjusted discount rate reduces investment. True or false?
Forecasting risk can be defined as the possibility that _____ will lead to incorrect decisions. a. the inclusion of opportunity costs b. erosion c. errors in projected cash flows d. the exclusion of sunk costs e. net working capital costs
True or false no need explanation 1. The shorter your time horizon , the less conservative you should be in investing your money. 2.If there is a little amount of risk in your investment, there will also a relatively little potential amount of return. 3.Your personality should be considered in making an investment 4. An investors financial position will also affect his or her objectives .
It is important to diversify your investments to maximize your returns and lower your overall risks. O True False
No risk, no reward. Most people intuitively understand that they have to bear some risk to achieve an acceptable return on their investment portfolios. But how much risk is right for you? If your investments turn sour, you may put at jeopardy your ability to retire, to pay for your kid's college education, or to weather an unexpected need for cash. These worst-case scenarios focus our attention on how to manage our exposure to uncertainty. Assessing and quantifying-risk aversion is, to put it mildly, difficult. It requires confronting at least these two big questions. First, how much investment risk can you afford to take? If you have steady high-paying job, for example, you have greater ability to withstand investment losses. Conversely, if you are close to retirement, you have less ability to adjust your lifestyle in response to bad investment outcomes. Second, you need to think about your personality and decide how much risk you can tolerate. At what point will you be unable to…
Which of the following statements is TRUE about risk-free investment? a. Return in risk-free investment is high, but the investment manager charges a fee for the guarantee. b. It always provides inconsistent return as consistent return requires higher risk c. It provides lower returns as higher return requires higher risk.

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Some savings and investment choices have the potential for higher earnings. However, these may also be difficult to convert to cash when you need the funds. This problem refers to: Multiple Choice inflation risk. O interest rate risk. O income risk. personal risk.