Question

1) Summarize in your own words the various investment options: CDs, annuities, bonds, and stocks.

2) Why is it easier to use regression to predict the behavior of an index versus an individual stock?

3) How can you use an annuity to plan for retirement? Is this different from a 401(k) or an IRA?

Answer 1

Based on existing financial investment vehicles, the following is true:

• 1. CDs, Bonds, annuities, and stocks are all investment options that vary in various ways but can be used for earn returns.
• 2. Regression is done on indexes because they are more predictable than stocks.
• 3. An annuity can be used to invest money over a sustained time period for use during retirement.

Investment options available

Certificate of Deposits are investment vehicles that a bank offers which pays a high rate of interest. The only drawback is that this money is not to be touched for a long period of time.

Annuities are like insurance products where a person pays a certain amount regularly. This will then grow at a certain rate of interest and pay out overtime.

Bonds are debt instruments issued by governments and companies which allows them to owe people. They will pay out a certain interest amount periodically until they pay off the entire bond.

Shares are ownership interests in companies that entitle the holder to a share of the profits. They usually make a profit through long term gain.

Using regression on Index

Regression is best used on an instrument that has predictable performances. Stocks can be highly volatile so regression can fail at predicting their behavior.

Indexes on the other hand are more predictable because they are diversified and risk is reduced thereby allowing regression methods to predict their movement more accurately.

Using an annuity to plan for retirement

You can pay a certain amount every period to an annuity vehicle such as life insurance. This will grow overtime until you retire and then pay out periodically as a form of income.

It is different from 401(k) and IRA because there are no limits to the amount you can invest, and there are no ownership limits which means you can own it with your life partner.

Find out more on IRA at https://brainly.com/question/10600625.