2. LAP: QS-032

3. Objectives Explain the relationship between risk and return. Describe the risks and returns of lending investments. Describe the risks and returns of ownership investments.

4. Explain the relationship between risk and return. Objective

5. Investors take a risk for the potential return. Why Risk It? Risk = possibility of loss Return = potential reward or benefit

6. High potential return → high riskHigh potential return → high risk Moderate potential return → moderate riskModerate potential return → moderate risk Low potential return → low riskLow potential return → low risk Risk and Return

7. What determines how much risk you can handle? What you want to accomplish What you want to accomplish How much time you have How much time you have Your personality Your personality Handling Risk

8. Protect Your Initial Investment High risk → Initial investment may be lost.High risk → Initial investment may be lost. No risk → Initial investment is secure.No risk → Initial investment is secure.

9. Use the risk pyramid to compare investments.Use the risk pyramid to compare investments. Categories:Categories: See Your Risk in Perspective  High  Moderate  Low Collectibles Real Estate, Stocks, Mutual Funds Savings Accounts, MMAs, CDs, and Bonds Peak → most risky Base → most reliable

10. Describe the risks and returns of lending investments. Objective

11. Securities = legal lending or owning agreements Securities OWNING INVESTMENTS LENDING INVESTMENTS SECURITIESSECURITIES LendingLending OwningOwning Categories:

12. Lending investment = lending money for a priceLending investment = lending money for a price Lending Investments

13.  Savings account Lending Investments—Types  Certificate of deposit  Money market account Lend money to a bankLend money to a bank Lend money to a government or corporationLend money to a government or corporation  Bonds

14. Describe the risks and returns of ownership investments. Objective

15. Ownership investment = owners’ rights High or moderate risk Ownership Investments

16. Stock mutual fund = owning pieces of several corporationsStock mutual fund = owning pieces of several corporations Ownership Investments—Types Stock = owning a piece of a corporationStock = owning a piece of a corporation Real estate = owning propertyReal estate = owning property Collectible = owning an item valuable to you or someone elseCollectible = owning an item valuable to you or someone else

17. Need to invest for retirementNeed to invest for retirement Home-improvement connectionHome-improvement connection Research reveals risks.Research reveals risks. There’s No Place Like Home Quick Case

18. MarkED Acknowledgments Original Developers Christopher C. Burke, Mary C. Hollaway, MarkED Version 1.0 Copyright  2007 MarkED Resource Center

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