Question

choosing investments
what should an investor consider when making an investment? choose four correct answers.
the length of the investment, because long term always means high risk
any taxes that will need to be paid at the state and federal levels
the history of the investment, which will indicate the level of risk
the nominal interest rate, which will show the real profit to be made
the rate of inflation, which could affect the value of the return
the level of risk, because the higher it is, the higher the potential loss is

Explanation:

1. Analyze "the length of the investment, because long term always means high risk": Long - term investments don't always have high risk (e.g., bonds held long - term can be low - risk), so this is incorrect.
2. Analyze "any taxes that will need to be paid at the state and federal levels": Taxes impact the net return on investment, so investors should consider this. This is correct.
3. Analyze "the history of the investment, which will indicate the level of risk": Past performance (history) of an investment can give an indication of its risk level (e.g., a volatile price history may suggest higher risk). This is correct.
4. Analyze "the nominal interest rate, which will show the real profit to be made": Nominal interest rate does not show real profit; real profit is related to real interest rate (adjusted for inflation). So this is incorrect.
5. Analyze "the rate of inflation, which could affect the value of the return": Inflation erodes the purchasing power of returns, so it affects the real value of investment returns. This is correct.
6. Analyze "the level of risk, because the higher it is, the higher the potential loss is": Higher risk investments have a greater chance of loss (and also higher potential gain), so investors need to consider risk level. This is correct.

So the four correct answers are:

• any taxes that will need to be paid at the state and federal levels
• the history of the investment, which will indicate the level of risk
• the rate of inflation, which could affect the value of the return
• the level of risk, because the higher it is, the higher the potential loss is

Answer:

• any taxes that will need to be paid at the state and federal levels
• the history of the investment, which will indicate the level of risk
• the rate of inflation, which could affect the value of the return
• the level of risk, because the higher it is, the higher the potential loss is