Question

Review the material in Chapter 2 on "Basic Ideas of Finance."
• What are the purposes and uses of assets?
• What is the main risk of buying or borrowing capital to invest in an asset?
• What financial factors should you consider when deciding to borrow capital?

Answer 1

1. Assets may be used to store wealth, create income, and reduce future expenses.

2. The major risks of borrowing to invest are: Bigger Losses - Borrowing to invest increases the amount you'll lose if your investments falls in value. You need to repay the loan and interest regardless of how your investment goes. Capital risk - The value of your investment can go down.