Question

1. An investor owns 1,000 shares of IMAX Corporation. This individual thinks the company has a huge growing potential and decides not to sell any of the holdings.  Explain the underlying behavior finance concepts involved and how they drive the investment decision making.

Answer 1

The investor of IMAX corporation is looking for a long term capital gains from his/her investment. If the investor is looking for a short term gain he will not hold his investment for a long term.

In order to make a good decision, the investors will check the associated risk and reward from the investment. They should calculate the discounted rate of return for their investments in the initial stages of investment and check the same that, is it profitable. Return of capital is also an important factor. Fiscal incentives, such as tax reductions, grants, and subsidies are a major factor.

A good and rational investor will consider the above things before making a fresh investment. If the investor is satisfied with the above factors in an investment he will make a good investment decision.