How do you make decisions that are expected to generate income?
At different stages of your life, you will evaluate investment options based on the expected cash flows that they are likely to produce – a process that hopefully will help you to make informed decisions. Think about the various way you might invest money to generate income in the future, and how you will make these types of decisions. For this assignment, suppose that you have been given $10,000 with the requirement that you “invest” it in one of the 3 different options below. Research the expected return and associated risk for each of the following:
Pay down your student loan or credit card debt. Although this is not technically an investment, it is effectively the same as earning a “risk-free” rate of interest. Alternatively, you can keep the cash in a riskless (FDIC insured) bank account. Current rates are available on a number of different sites such as Bankrate.com.
Invest in any stock(s) of your choice. Research the company on Yahoo Finance or other financial site, and get statistics regarding the expected risk and return for this investment. Be very specific about why you selected this company.
Invest in a real estate rental property. Research property prices, rents, and expenses for residential income properties or get basic information from a property management site such as Mashvisor or Roofstock. Note that a “cap rate” or “cash-on-cash” return is like a dividend yield for a stock, and is calculated as net operating income (rental income less expenses) divided by the price.
There are no wrong answers, but you must justify your opinions using the concepts that you have learned in this course. Be sure to include all factors used in making your evaluations, and be specific about your conclusions. To receive full credit, your answers must be well thought out and well-written.
Answer ALL 4 questions below:
Before making any calculations, which option appeals to you the most?
What methods would you use to evaluate these options? Compare each option in terms of current yield, potential for appreciation, and estimate an approximate long-term total return.
Which option offers the best potential return given its level of risk? Which one would you choose given your level of risk aversion? Explain in detail.
What sort of capital investments do you think you might make in the future? What other investments (such as owning your own company or investing in a start-up) would you consider? Why? Are there any factors in addition to monetary gain that you would consider?
Your score will be determined by your word count (200 word minimum), completely answering all questions, the accuracy of the information you provide, and how well-written your answers are (see rubric below). To submit this assignment, simply type your response in the text entry box, as this assignment is TEXT ENTRY ONLY. Turnitin has been enabled for this assignment.
Copyright © 2020 Dr. Greg Smersh
RubricReflections
Reflections
CriteriaRatingsPtsThis criterion is linked to a Learning OutcomeCompletely answered all questions
25 ptsAnswered all questions
15 ptsAnswered most questions
10 ptsAnswered only a few questions
5 ptsResponse was vague and unrelated to questions
25 pts
This criterion is linked to a Learning OutcomeAccuracy of information
25 ptsAccurate information
10 ptsVague information
0 ptsInaccurate information
25 pts
This criterion is linked to a Learning OutcomeWell written
25 ptsThorough explanation with clear examples
20 ptsExplanation with somewhat clear examples
10 ptsMissing clear examples
5 ptsExplanation is inadequate and too brief
25 pts
This criterion is linked to a Learning OutcomeWord count
25 pts200 words or more
20 pts150 to 200 words
10 pts100 to 150 words
5 ptsUnder 100 words
25 pts
Total Points: 100
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