Question

when you look at a particular investment, savings vehicle, mortgage, or car loan, can you identify the risk or opportunity in the product?

Answer 1

The risk depends upon the type of investment as also the credibility of the organization. For instance investmenbt in stocks has a higher risk than investment in bonds. Investing in a company bond has a higher risk than investing in a Government bond. Hence the investor/borrower should assess the amount of risk that the product carries alongwith the risk that he is willing to undertake.

The opportunigty wil depend upon the return or use of the product. For instance in case of investment, one would see the return versus the opportunity cost of those funds. In case of a mortgage one should weight the cost of the mortgage against the use of the funds.Hence the person must assess the benefit by assessing the opportunity cost of the product.