From the time of the Great Depression (and maybe because of it), the words “investing” and “stock market” have been associated by many of us with the words “risk” and “gambling,” with good reason. The most spectacular news regarding the stock market is that a…
Bad news is always remembered more because it is human nature that people’s miseries create a stronger impact in our minds. But it should also be remembered that if there is a Leeson, there is also a Warren Buffet. Money was lost on internet stocks, but just before that, money was also made on the same internet stocks. And Bernard Madoff was one of a kind, who took advantage of people’s confidence to him as a SEC consultant. There was nobody before or after him who operated at the level he did, because the there is usually in place an effective regulation of the market and most such operators are caught early on (Arnold, 2004).
If there are no extreme developments such as market crashes and financial crises, investing for value long-term has always been sound strategy for enhancing wealth. There are several vehicles for investment: the savings account, the money market, certificates of deposit and common stocks are some of them. Each of these instruments is associated with a particular level of rate of return. The rate of return is the percentage gain an investment makes – in short, how much yearly earnings are expected as a proportion of the capital invested. The rates of return fluctuate, but they maintain a more or less consistent relationship with those of the others. For instance, the savings account in a bank would normally have the lowest rate of return which is denoted by its interest rate. The money market placement has a slightly higher interest rate, followed by certificates of deposit, and then the stock investment. The average rates of return for each of these instruments is shown in the second row of Table 1 (source: UK National Statistics Online).
The rate of return plays an important part in the concept of compounding. In compounding, the returns that have been accumulated for one year becomes part of the ...
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(Basics of Finance and Investment Essay Example | Topics and Well Written Essays - 1500 Words)
“Basics of Finance and Investment Essay Example | Topics and Well Written Essays - 1500 Words”, n.d. https://studentshare.net/miscellaneous/386168-basics-of-finance-and-investment.
The first part of the process is all about the identification of needs and preferences, understanding the sequence of actions, predefined investing strategies and philosophies, and the components of strategy in the execution of the process. The second part is the actual construction of investment portfolio in order to minimize risk.
Page 1 No.1 Solution:
a. The after-tax cost of capital can be calculated by the following formula:
Kd = (I/P) (1-T)
Where, Kd = after-tax cost of debt
I = interest in dollars
P = principal amount borrowed
T = effective tax rate (Droms & Wright, 2010, p.209)
Data of five different stocks have been taken into consideration for the same and 5 years of data have been taken into account. Different statistics provision could be taken into account for the same like Average return, Standard Deviation, Correlation and other.
Savings Definition Savings is the amount of the disposable income which is not spent on the consumption or use of consumer goods. It is either accumulated or directly invested in payment of home mortgage, in capital equipment etc. It can also be invested indirectly by purchasing the securities.
Interest rates on 10-year U.K. government bonds are expected to rise 10 to 15 basis points to 4.65%, some 40 basis points higher from their lowest level in January 2006 (BOE, 2006, p. 1; Economist, 2006, p. 97).
Interest rates determine the cost of borrowing money.
When the opportunity cost is compounded annually, the values appear to b higher. It is evident that the annual payment provides better returns because the difference in values is far greater when compared to the value wherein the payment was made quarterly.
Investment risk refers to the probability and likelihood that the investments made by individuals as well as corporate investors do not provide the required returns that were calculated before the decision for the investment was made. There may be a number of investment risks that directly or indirectly affect investments.