Investment

Definition

Investment is the allocation of resources, typically money, with the expectation of generating an income or profit. It involves committing capital to an asset with hopes that its value will increase over time.

5 Must Know Facts For Your Next Test

1. Investments can include stocks, bonds, real estate, and other financial instruments.
2. The future value of an investment depends on the interest rate and the length of time the money is invested.
3. Understanding the concept of present value helps in determining how much a future investment is worth today.
4. Compounding interest significantly impacts the growth potential of investments over long periods.
5. Risk and return are directly related; higher potential returns usually come with higher risks.

Review Questions

• What factors influence the future value of an investment?
• How does compounding interest affect an investment's growth over time?
• Why is understanding present value crucial for evaluating investments?

Related terms

Present Value (PV): The current worth of a future sum of money given a specified rate of return.

Future Value (FV): The value of a current asset at a future date based on an assumed rate of growth.

Interest Rate: The percentage at which invested money grows annually or periodically.