Managing Income, Growth, and Liquidity

1. The Matadors own a townhouse that they have been renting out for many years. It provides a steady source of income each month, but sometimes they have to do major repairs on it. What are some alternative investments the Fowlers could look into that would give this type of regular income stream?

Give pros and cons for each along with your recommendation.

2. Which investment is more liquid: a boat or jewelry? Why?

3. What do you think has more risk: buying corporate bonds or buying a second house in hopes that housing prices increase?

4. Suppose that you wanted to invest in something and you did not want it to pay any regular income (you want to make all your return when you sell it). What are some investments that fit this criterion?

5. Which is riskier: a company's stock or the same company's bonds?

6. You have built up an emergency fund of two month's expenses. Right now it is just sitting in a savings account. You friend says that you should put it in CDs to earn more interest. What is wrong with his suggestion? What are some alternatives to earn a bit more interest and still fulfill your goal of having an emergency fund?

7. Which of the following would you expect to have a higher return: 2002 Honda Accord, a Glock pistol, or an entertainment center? Which one is the most liquid?

8. Yan has all of her money invested in small-company, growth stocks. She has been investing it this way since she graduated and started working 10 years ago. What are some steps that she should take as she moves towards retirement over the next 20 years? Should her new investments have more or less liquidity?

9. Beyonce has enough money to put a 20% down payment on the new house he and his family have picked out, but they will lose the emergency fund. Putting less than this down will increase his payments. What tradeoffs should he consider?

10. Beyonce decided to go ahead and put 20% down on his new home. Is there any way he could access this money if he needed emergency cash?

11. What does it mean to be "land rich, cash poor?" How does this relate to the topics we have been covering?

12. With a bond, what is the maximum return you can get if you hold a bond to maturity? Explain.

13. Is there a maximum return when you buy stock?

14. If you rent out a house, what is the maximum return you can make if you don't sell the house? What would need to take place to achieve this return?