Timemaps Lesson 9.2 Worksheet

Worksheet

Lesson 9.2 – Investment Risks

1.Each ______comes with the risk that it could lose ______or ______of its value.

2.What is the definition of ‘Risk’?

3.What does the statement “past performance is no guarantee of future performance” mean?

4.After defining a comfortable ______, you can begin to select ______that will help you reach your ______.

5.What is the definition of ‘Rate of return’?

6.The level of risk ______when the expected return increases and ______when the expected return decreases.

7.Name three (3) important types or terms typically associated with the word ‘Risk’:

8.Provide an example and description of ‘Operational risk’:

9.Major ______or ______developments can cause an ______to decline.

10.Provide an example and description of ‘Disaster risk’:

11.What is the definition of ‘Economy’?

12.What is the definition of ‘Market risk’?

13.______is an investment risk many individuals overlook.

14.Why is ‘Inflation’ an investment risk?

15.Most experts say inflation acts like ______on your investments.

16.Why is ‘Inflation’ considered a hidden tax?

17.What is the definition of ‘Rate of inflation’?

18.If the rate of inflation was 3% and you had an investment earning a 5% rate of return, what effective rate of return would your investment really be earning?

19.Smart investors always want their investments to grow at a rate ______than the ______.

20.Run Example1 (9.2.2) ‘Inflation Risk Example’ and complete the table below using the parameters specified.

Investment / $2,000 / $2,000 / $2,000
Type of Investment / Savings Account / CD / Stocks
Rate of Return (%/yr) / 1 % / 3% / 10 %
Rate of Inflation (%/yr) / 3 % / 3 % / 3 %
Investment Growth ($) / $ / $ / $
Inflation Adjusted Growth ($) / $ / $ / $
Effective Rate of Return (%/yr) / % / % / %

21.Why is there a risk associated with hidden investment costs?

22.List four (4) examples of hidden costs that can reduce the return on an investment?

23.Most experts agree the best way to determine the ______associated with a specific investment is to base it on a ______of the investment market where the investment is bought and sold.

24.______and ______are bought and sold each day on the ______.

25.What is the definition of ‘Stock market’?

26.Most individuals consider a ______to be a good investment with a ______level of risk. The average home in the United States has increased in value by more than the ______since the mid 1980’s.

27.While ______has been a positive investment for most individuals, there are cases where the value of homes has ______.

28.Complete Table 9.2.6.1 as shown below relative to the ‘Levels of Risk’ of an investment.

Risk / Price / Daily Change
Low / < 1%
Medium / Fairly stable
Slightly stable

29.The risk assigned to an investment is a combination of the ______of return for the investment and the possibility of loss of the ______.

30.What is the definition of ‘Principal’?

31.Complete Table 9.2.6.2 as shown below relative to the ‘Historical Return and Risk’ for some common types of investments.

Investment / Return / Risk
Savings / Low
Money Market / 2 – 6 %
1 – 8 %

32.Run Exercise1 (9.2.6) ‘Historical Risk Exercise’. Approximate a Rate of Return percentage for the Year specified using the ‘Rate of Return’ or ‘Volatility’ graph for each type of investment listed.

Type of
Investment / 1980 / 1985 / 1990 / 1995 / 2000 / 2005 / 2009
6-month CD / % / % / % / % / % / % / %
Real Estate / % / % / % / % / % / % / %
Bonds / % / % / % / % / % / % / %
Stocks / % / % / % / % / % / % / %

33.Most investors do not want to ______the money they invest. They understand that the risk is ______.

34.Investors who hold stocks for more than ______to ______years have enjoyed fairly consistent returns of ______% or ______.

35.What are two (2) examples of short-term investments?

36.In recent years, investors who place their money in ______and ______did not lose any of their ______. However, their ______was probably less than the rate of inflation, thus inflation was actually ______the value of these investments.

37.Summarize what you learned in Lesson 9.2 – Investment Risks:

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