Chapter 1

1. Define the term investments.

***Investment is defined as the commitment of funds or current financial resources to one or
more assets for the purpose of achieving higher gains in the future. This shows the
importance of time and future that arises as these are the two important elements in
investment.
2. Distinguish between a financial asset and a real asset.
***Real assets are the tangible assets that are used to produce goods or services like the
buildings, land, or machinery that are utilized in the production of commodities or services.
While financial assets are the claims on real assets or the income produced by those assets.
Examples of financial assets include stocks and bonds that are like worthless papers and do
not directly contribute to the production of a commodity or service, but instead, derive their
value from the claims they carry.
3. Distinguish between expected return and realized return.
***Expected return is the income or loss from an investment that the investors expects to
receive in the future, based on an assumed rate of return. While the realized return is the
amount of actual income or loss left after the investing period is over.
4. Define risk. How many specific types can you think of?
***Risk is defined in many ways but in relation to investments it refers to the uncertainty
associated with an exposure to loss. It could result to a difference on the actual return from
what was expected. There are several types of risks, some of those that I can think of are the
interest rate risk which is under market risk, inflation risk, liquidity risk, foreign investment
risk, and many more ☺.
5. What is meant by the expression efficient market?
***The expression, “efficient market” means that the prices of securities are efficient or
close to what reflects as its true value; or it is where the market price is an unbiased estimate
of the true value of the investment.

 WHAT HAVE I LEARNED IN THIS CHAPTER?

***In this chapter, I learned that investing is important to money management for financial
security and income. It means using your money to make more money to improve our own
future monetary wealth. I learned that there are also several things to consider and be careful
with when investing like understanding that the expected return could be different in amount
when realized due to various factors or risks. This chapter taught me that when investing, it is
expected that when the risk is higher or lower, the possible return is also higher or lower
respectively.