Question

a. Why might investors opt to hold shares rather than bonds in their portfolios (you may want to define what portfolios are first)

b. In valuing shares, several valuation methods have been highlighted. What are they and which one is superior (simpler) among them?

c. Explain the valuation errors in relation to valuing equity shares

Answer 1

a. Portfolios are the ownership of financial assests which gives out an expected return over a period of time. It can be in the form of bonds, stocks, equities, securities, debentures, etc.
Investors might opt to hold shares rather than bonds in their portfolios because even though shares are riskier than bonds, in the long term shares will get higher returns. If a company grows exponentially in the long term, the shares will generate even higher returns as a result for risk takers, shares are better options. Bonds might be less risky but it has lower returns than shares.