09 Elms Quiz - Arg
09 Elms Quiz - Arg
09 Elms Quiz - Arg
Question 1
Matching
5
5
Disadvantage: Riskiest of all assets (can lose as much as 50% of their money in one
day) 1 2 3 4 5
1. Stocks (equity)
2. Bank deposits (fixed income)
3. Mutual funds
4. Real estate
5. Insurance
Why would a risk-taker type of investor prefer equities over fixed income?
Correct answer:
Equities are the riskiest of all assets because of their price volatility. In the Philippine
Stocks Exchange, clients can lose as much as 50% on a stock in one day. Reasons
why stock prices are volatile include uncertainties in company’s earnings, negative or
positive market sentiment of investors, etc. And with these great risks comes the
potential for great upside for the risk-taker investor.
Question 3
Freeform
Why would a risk-averse type of investor prefer fixed income over equities?
Correct answer:
Fixed-income assets are low-risk investments. Even if potential returns are low
relative to equities, it gives known income/periodic payments to the risk-averse
investor. However, this is only true if the security is held until maturity. Default risk,
which is the risk of the counterparty not fulfilling his obligation, is also present in
fixed income assets. Therefore, an investor must carefully analyze the issuer and be
convinced about its financial stability before buying its debt security.