Introduction

Overview

An investor always looks for investment opportunities that have returns higher than risk free bank accounts. Different investment opportunities have different risks and the general rule is that the higher risk implies higher return. Options and futures investments are usually among the investment alternatives that carry a high level of risk. On the other side, they have high returns, meaning that there is chance that you have high return on your investment but that you also may lose all or part of your initial investment.

Different people accept different levels of risk, however, it is very important to understand the worst that can happen from a given investment. With this in mind, only invest on an amount of money that wouldn’t affect your standard of living or investment strategy if the worst case scenario occurs. One strategy for risk management is diversification of investments, which means distributing the available funds among multiple projects rather than investing the entire sum in just one project.

This lesson will focus on the economic potential of general stock, Option and Future contracts.

Learning Objectives

At the successful completion of this lesson, students should:

• be able to distinguish between individual and business investment choices;
• be able to quantify the risk associated with the investment choice; and
• be familiar with personal investment and hedging terminology.

What is due for Lesson 12?

This lesson will take us one week to complete. Please refer to the Course Syllabus for specific time frames and due dates. Specific directions for the assignment below can be found within this lesson.

Questions?

If you have any questions, please post them to our discussion forum, located under the Modules tab in Canvas. I will check that discussion forum daily to respond. While you are there, feel free to post your own responses if you, too, are able to help out a classmate.