Page 84 - DMGT515_PERSONAL_FINANCIAL_PLANNING

Unit 4: Measuring Investment Return

There are many sources of credit in India. These can be broadly classified into institutional Notes
(commercial banks, cooperative credit banks etc) and non institutional/informal (such as
relatives, friends and money lenders).

4.8 Keywords

Capital Gain (or loss): Capital gain (or loss) is a profit (or loss) made while selling a capital
asset.

Investment: Investment involves making of a sacrifice in the present with the hope of deriving
future benefits.
Real Rate of Return: The real rate of return is generally equal to the rate of return expected by
an investor from a risk-free capital asset assuming a world without inflation.
Return: Return expresses the amount which an investor actually earned on an investment during
a certain period.
Risk: In financial terms, risk is the chance or probability that a certain investment may or may
not deliver the actual/expected returns.
Risk-return Trade-off: The risk and return trade off says that the potential return rises with an
increase in risk.

Securities: The term ‘securities’ is used in the broadest sense, consisting of those papers that are
quoted and are transferable.
Valuation: Valuation is the method for assessing whether a potential investment is worth its
price.

4.9 Review Questions

1. Explain the relation between Risk and Return with the help of graph.
2. What do you understand by the term: Return of an asset? Explain in detail.

3. What are the various types of investment options available in Indian market?
4. What are three major determinants of the rate of return expected by the investor. Explain
briefly.

5. Explain the two basic investment avenues available in Indian financial market. Also give
examples of each.
6. What do you understand by non-security forms of investment? Discuss using suitable
examples.
7. Explain the concept of capital gains/loss. How does it play a vital role in investment
decision?

8. What is the difference between real and nominal rate of return? Which is important from
the perspective of calculating the investment return and why?
9. What are government securities? Explain the different types of government securities.

10. Explain the treasury bills. How do you view them as an investment option?
11. What are risk free and risky assets? Explain.
12. What are the various sources of credit? Explain in detail.

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