Considering the Value of a Financial Instrument, the Circumstances Under

question 81

Multiple Choice

Considering the value of a financial instrument, the circumstances under which the payment is to be made influence the value because:

• A) we like uncertain payoffs because this adds to the return.
• B) payments that are made when we need them the most are more valuable.
• C) the sooner the payment is to be made the better.
• D) we know when certain events are going to occur and that is when we want the payment.

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Definitions:

Leverage

The use of borrowed funds to increase the potential return of an investment, also amplifying the potential risk of loss.

Equity Mutual Funds

Investment funds that pool money from many investors to purchase a portfolio of stocks, aiming to provide returns through dividends and capital gains.

Risky

An adjective describing the likelihood of losing part or all investment due to various types of investment or market risks.

Equity Growth Fund

A mutual fund that invests primarily in stocks with the goal of capital appreciation rather than income.