Purchase Solution

Risky and Safe Investments

Not what you're looking for?

Ask Custom Question

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.

Purchase this Solution
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

Solution Preview

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 ...

Purchase this Solution
Free BrainMass Quizzes
Writing Business Plans

This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.

Introduction to Finance

This quiz test introductory finance topics.

Organizational Behavior (OB)

The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.

Transformational Leadership

This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.

Production and cost theory

Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.

View More Free Quizzes
Related BrainMass Solutions

  • Project payoff, debtholder & shareholders - Corporate Finance

    Debt holders prefer less risky investments, thus they will opt for Project A having guaranteed payoff of $200 million. On the other hand the shareholder prefer the risky investment and will go for Project B.

  • Corporate Finance Foundations

    It is only with the increase in the expected return of the risky investment relative to the safe investment that the individual or company will potentially choose the riskier investment over the safe one.

  • Corporate Finance Project

    It is only with the increase in the expected return of the risky investment relative to the safe investment that the individual or company will potentially choose the riskier investment over the safe one.

  • It is only with the increase in the expected return of the risky investment relative to the safe investment that the individual or company will potentially choose the riskier investment over the safe one.

  • Discuss risk factors in analyzing investments

    From there, you want to explain how expected returns can be calculated given the level of risk and outlining which investments are more risky and which are less risky.

  • Finance

    From there, you want to explain how expected returns can be calculated given the level of risk and outlining which investments are more risky and which are less risky.

  • Risk analysis for investment

    You want to outline which investments are more risky and which are less risky. Create a file for uploading to the Discussion Board, which contains all of the following information.

  • Project Acceptance Criteria

    If the firm is a conservative firm and take only moderate risk than we can choose Project B as it is very safe project. Project A is very risky thus its suitable only for those which can take high risk.

  • Risky Assets

    14342 Risky Assets Please see the attached file for full problem description. --- Suppose that there is one safe and one risky asset and that the investor has initial wealth .

View More Related Solutions