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    Risky and Safe Investments

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    Identify a "risky" and a "safe" investment and provide rationale to justify your choices. Also, discuss the trade-off of risk and reward between your two investments.

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    Lately, more and more options for investing are increasing but each of these single investment vehicles can easily be grouped according to three basic characteristics - safety, income and growth - these are also among the objectives of the investor. Oftentimes, investors may have one or two of these characteristics but achieving success in one will always come at the expense of the others.

    There is no such an investment that can be called completely safe and secure. Most safe investments can be found in government issued securities that are purchased from stable economic systems. Another safe investment funds are corporate bonds issued by top 'stable' companies. These securities will definitely preserve the principal amount and earn a specific return on investment. (investopedia.com)

    Among the other safest investments, which are commonly found in the money market, are Treasury bills, certificates of deposit, bankers' acceptance slips or commercial paper and other government bonds. The Treasury bills have the lowest risk among them all but the least rate of return while the corporate bonds have the highest risk and return the highest as compared to the others. As the rate of return increases, safety decreases and vice versa. (investopedia.com)

    Most investors have the objective of generating income from their ...

    Solution Summary

    This solution discusses the following in 773 words with 7 references.
    * Three (3) basic characteristics of investments
    * Definition and examples of safe investments
    * Description of capital gain
    * Treasury bonds/T-bills as safe investments, trade-off, risk/reward
    * Stock market investments as risky investments, trade-off, risk/reward
    * Risk-return trade-off principle