a) Discuss the difference between speculative risk and pure risk. b) How can a b

Question

a) Discuss the difference between speculative risk and pure risk.

b) How can a business owner identify risk exposure?

c) What are some programs that a business owner can use to reduce risk?

d) Discuss two or more investment vehicles a small business owner might select and why.

f) Compare and contrast short-term and long-term investment strategies for an individual.

g) Discuss at least four basic factors that should be considered when establishing an individual retirement account (IRA) to supplement your living expenses during retirement.

Explanation / Answer

Pure risk is insurable i.e. there is a probability of loss to happen. Speculative risk is not insurable.

Speculative risk involves the possibility of gain while pure risk is not concerned about gain.

The investor owns the investment vehicle, which he bought with the intention of having growth in value. Example: real estate, stocks, etc.

The investment vehicles that have good value as cash, but have very low returns. Example: saving account

The investor nominates another person to use his money as investment and expects good profits in return. Lending investments involve low risks and usually have lower returns. Example: certificate of deposit

Long-term investments refer to the investments that have a high locking period. The amount is invested for a substantial time. The returns are quite high and the risk involved is very less in this investment. This investment is also called as growth investment. The investor invests in a stable company and waits for a substantial time to see quantifiable returns.

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