Question

You just met with a new financial advisor who told you that “you should invest in...

You just met with a new financial advisor who told you that “you should invest in long‐term because their interest rates are over 20% while short‐term bonds only have a yield of 15%”. Is the financial adviser necessarily right?

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

No, I don’t think its necessarily right, definitely the long term investment of 20% will yield more , than the 15% yield on short term bond. But, long term investment definitely comes with a risk, in short run generally the price level remains constant, but in long run the price level can definitely rise due to inflation. Suppose we invest rs 100 in both short run and long run of 1 year and 5 year respectively, in short run we will gain Rs 115 and in Long run we gain Rs 120, definitely 120>115. In short run definitely there is a profit of Rs 15 and we can buy more good with it, but suppose in 5yrs duration the inflation rate rises raising the price level, in such a way that a good which we could buy with rs 100 ,5yrs ago we have to buy it with rs 150 now, then even if we have earned Rs 120, after 5 yrs, the net profit in short term becomes more than long term.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
As a financial advisor, you are assigned a new client who is considering investing in one...
As a financial advisor, you are assigned a new client who is considering investing in one of two stocks, A or B. The table below shows information about the performance of stocks A and B last year. (Average) Return Standard Deviation Stock A 15% 8.3% Stock B 15% 2.1% What factors would you consider as a financial advisor in making decisions about the data above? Based on these factors, what stock would you recommend to the client? What reasons will...
As a financial advisor, you are assigned a new client who is considering investing in one...
As a financial advisor, you are assigned a new client who is considering investing in one of two stocks, A or B. The table below shows information about the performance of stocks A and B last year. (Average) Return Standard Deviation Stock A 15% 8.3% Stock B 15% 2.1% What factors would you consider as a financial advisor in making decisions about the data above? Based on these factors, what stock would you recommend to the client? What reasons will...
As a financial advisor, you are assigned a new client who is considering investing in one...
As a financial advisor, you are assigned a new client who is considering investing in one of two stocks, A or B. The table below shows information about the performance of stocks A and B last year. Return Standard Deviation Stock A 15 % 8.3% Stock B 14% 2.1% As a financial advisor, are there factors other than return and risk that should be considered in making this decision? Based on these factors, what stock would you recommend to the...
A financial advisor tells you that you can make your child a millionaire if you just...
A financial advisor tells you that you can make your child a millionaire if you just start saving early. You decide to put an equal amount each year into an investment account that earns 7.55 interest per year, starting on the day your child is born. How much would you need to invest each year (rounded to the nearest dollar) to accumulate a million for your child by the time he/she is 35 years old? (your last deposit will be...
You are considering calling in existing bonds and issue a new set of bonds because the...
You are considering calling in existing bonds and issue a new set of bonds because the market interest rates have dropped significantly since you issued the current bonds. The current bonds pay an annual coupon of 12%. The market interest rate for long term securities has dropped to 8%. There are $20M in bonds outstanding and they have 10 years left to maturity. If we were to issue new bonds, we’d incur underwriting costs of $250,000. Per the bond indenture,...
A bio-technology company is looking to invest $25 billion in new technology that is expected to...
A bio-technology company is looking to invest $25 billion in new technology that is expected to produce incremental cash flows of $7 billion, $10 billion, and $12 billion in each of the next three years, respectively. The CFO has asked that you and your team determine whether or not the company should invest in the new technology. In order to finance the project, the company will issue new bonds and new equity. Of the $25 billion in costs, $16 billion...
Earnest B, Bass, a financial advisor, recently told one of his clients: "The biggest mistake you...
Earnest B, Bass, a financial advisor, recently told one of his clients: "The biggest mistake you can make is to hold onto a stock for too long in order to avoid a loss. Let's say you bought a stock for $50 per share but that six months later the price fell to $40 after a poor earnings report. Many of my clients in this situation will hold the stock, hoping the price will later rise above $50. In most cases...
As a corporate treasurer, you manage a $100 million bond portfolio. Economists suggest (and you believe)...
As a corporate treasurer, you manage a $100 million bond portfolio. Economists suggest (and you believe) that market interest rates are headed up over the next several months. To reduce interest rate risk you should attempt to: I. Reduce the average maturity of the portfolio by selling long-term bonds and buying short-term bonds. II. Lengthen the average maturity of the portfolio by buying long-term bonds and selling short-term bonds. III. Reduce the average coupon rate by selling high-coupon bonds and...
You are reviewing the most recent three years financial statements of a potential partner and notice...
You are reviewing the most recent three years financial statements of a potential partner and notice that their loan balances and their interest expense is declining slowing over the three-year period. They have told you that they have had the same loans outstanding over the three-year period (no loans paid off and no new loans signed). What is the likely explanation for the decrease in loan balances and interest expense? Their loans only require interest payments until maturity. They have...
I'm having a really hard time with my financial calculator/ excel. I just need the answers...
I'm having a really hard time with my financial calculator/ excel. I just need the answers $ and % Market Value Capital Structure Suppose the Schoof Company has this book value balance sheet: Current assets $30,000,000 Current liabilities $10,000,000 Fixed assets 50,000,000 Long-term debt 30,000,000   Common stock   (1 million shares) 1,000,000 Retained earnings 39,000,000 Total assets $80,000,000 Total claims $80,000,000 The current liabilities consist entirely of notes payable to banks, and the interest rate on this debt is 9%, the...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT