Final answer:
Investments in debt securities are classified as held-to-maturity, trading, and available-for-sale. Risk assessment plays a key role in choosing bond investments due to factors like borrower riskiness and inflation. Investors must analyze risks, returns, and market conditions to align with their financial goals.
Step-by-step explanation:
The three types of classifications for investments in debt securities are held-to-maturity, trading, and available-for-sale. Held-to-maturity securities are those that investors intend to hold until they mature. On the other hand, trading securities are bought and held primarily for sale in the near term to generate income on short-term price differences. Available-for-sale is the middle ground where the securities are neither held strictly for trading nor held until maturity. Instead, they can be sold if needed. Analyze the risk involved in different types of financial assets is crucial for investors. Bonds, for instance, offer a rate of return, but this return varies based on the riskiness of the borrower. Factors like inflationary rise in the overall level of prices and a risk premium due to borrower's riskiness also affect the interest rate provided on these securities. Planning and analysis are important because investors typically have specific financial goals, and they must weigh the risk and potential returns of different investment options accordingly. Moreover, investors in the financial market consider aspects such as time horizon, liquidity needs, the financial market conditions, and early-stage investors. For businesses, obtaining financial capital through methods such as by reinvesting profits, borrowing through banks or bonds, and selling stock affects their financial strategies and the options available to investors.