2. To be able to analyze the risk of an
investment.
3. 1. Inflation
The consistent rise in prices of
goods and services over time
Example – McDonald’s
hamburger in 1967 costs 10
cents, now it costs about a
dollar
Why?
4. 1. Inflation
If your rate of return is less than
the inflation rate, you are actually
losing the value of your
investment – EVEN IF YOU HAVE
MORE MONEY!
Item 1999 2011 Rate of
Inflation
Dozen Eggs $1.15 $1.35 17%
Gallon of Milk $1.46 $3.99 173%
Gallon of Gas $1.12 $3.87 246%
5. 2. Interest Rate
If the Federal Reserve
adjusts interest rates, you
might be locked into a higher
or lower interest rate than
what is currently available
6. 2. Interest Rate
Adjustable – Rate for your
investment changes with the
Federal rates
Fixed – Rate stays the same
throughout the loan or
investment
7. 3. Business Failure
Investments in companies
that go bankrupt are lost!
This can be minimized
depending on the company
8. 4. Financial Market
The public’s perception of the
economy and various
financial markets
9. 5. Global Events
When events around the
world effect the value of
certain investments
Example: After 9/11, which
investments lost value?
Which gained value?
10. How would you change the risk
continuum after knowing the
types of risk?
