...ukessays.com http://www.ukessays.com/essays/finance/bank-deposit-or-common-stock-investment-finance-essay.php Bank Deposit Or Common Stock Investment Finance Essay In our modern society, money has become one of the basic factors apart from food, shelter, clothing and medicine that human needs to survive. In practice, it is easy to spend money than making it (Mitchell, 1912). One optimal way to make money is investment but a number of subsequent questions have arisen. What are investment opportunities? Which type of investment options do provide the competitive benefit for investors? And what are the benefits and drawbacks of each option? To answer these questions, there are many alternative options of investment the investors can choose. This essay will focus on only two types of investment which are bank deposit and common stock. The former is one way that savers can do to increase money quantity by placing it in banks and looking for future interest. The latter is another way that investors fund their money by buying some company’s shares. This can be claimed as buying a part of that company. Nevertheless, before making the investment decision, investors ought to have some broad knowledge about the type of that investment. In fact, the optimal option for investment depends on market’s circumstance and preference of investors. For example, if economy fluctuates, investing by depositing money in banks is safer because it guarantees that all invested money will be returned...
Words: 2726 - Pages: 11
...Introduction Stocks and bonds qualify as the two major classes of assets that are used by investors in planning their portfolios for investment. Stocks offer the investors an opportunity to have a stake in the company, whereas the bonds are affiliated to the loans that are made to a company. Generally stocks are considered to be very volatile and much risky to invest in as compared to the investment in bond (Alexieff, 2014). However there exist different stock and bond types that have with them varying volatility levels and the risks also vary. Types of Stocks and Bonds There exist different types of stocks and bonds from which an investor could choose from. Out of these stock and bond types, some make sound investment records than other types of bonds or stocks. Types of Stocks Stocks are classified under two major categories which include common stocks and the preferred stocks. The preferred stock is further classified into the participating and the non-participating stocks. Majorly most investors usually trade in the common stocks only (Veale & New York Institute of Finance, 2011). Under the common stocks, it is very easy to evaluate stock types depending on a number of primary factors. Diversified investment portfolios involve wide and vast company types of stocks. Stocks can be classified as follows: Stocks by size- there are various types of companies that one can invest his stocks in. There are small sized companies, medium companies and the large corporations....
Words: 1578 - Pages: 7
...An accepted fact among investors is that the higher the returns on an investment, the higher the risks are. Safe investments carry low risk, but the returns are also lower. Different levels of risk apply to common and preferred stock, as well as to corporate bonds. Corporate bonds generally have the lowest level of risk of the three investment types, but also offer lower returns, in spite of regular dividend payments. Common stocks have the highest risk of the investments and the highest potential returns. Common Stocks When you purchase stock in a company during a public offering, you become a shareholder in the company. Some companies pay dividends to shareholders based on the number of shares held, and this is one form of return on investment. Another is the profit realized by trading on the stock exchange, provided you sell the shares at a higher price than you paid for them. The risks of owning common stock include the possible loss of any projected profit, as well as the money paid for the shares, if the share price drops below the original price. Preferred Stocks This type of stock is rated by the agencies in the same way as corporate bonds are, which is based on the company’s performance, and gives buyers a degree of reassurance. The stock is purchased either online or through a broker, and offers a variety of different share options compared with common stocks, which are relatively straightforward. Most preferred stocks pay shareholders a fixed dividend based on profits...
Words: 1480 - Pages: 6
...INTRODUCTION Investment instrument is a document such as bond and share certificate that has monetary value through agreement that agrees make payment of money to another parties for purpose gain equity capital or loan capital. An investment instrument give a promise of earnings and return to the holders or recipient. It also called as financing instruments. There are three common types of investment instruments in the market which are money markets, bonds and common shares. Money market is the short-term loan market which is less than one year maturities with relatively liquid and low-risk debt due to short duration. Governments and large corporations are usually issued the money market securities in forms of banker’s acceptance, certificates of deposit and commercial papers. The money market instruments have a lower risk compare to others instruments. As a result of lower risk and relatively liquid instrument, thus money market instruments get a lower return compared to others investment. Money markets also called as cash investment. Bond is a long-term debt instruments which is more than one year maturities with the purpose of lend money for raising capital at specific period at fixed interest rate. Bonds are usually used by companies or government to finance a different type of activities and project. The risk level of bond instrument is considered lower risk than common shares. However, if an investor investing in junk bonds can be very risky to investor. The return of...
Words: 3562 - Pages: 15
...Investment banking process for an Initial Public Offering: * The process of Initial Public Offering starts when a firm wants to raise its capital by selling or floating its securities. These securities can be in the forms of bonds or stocks or other types, which will be first sold to the public through primary market. The selling of securities to the market can only be called Initial Public Offering when it is the first time that the company sells its securities to the public. The process of IPO through investment bankers is as the following: * 1. Forming of underwriting syndicate: usually more than one investment bankers help the company issue its IPO. One investment banker is called underwriter than the group of investment bankers is called underwriting syndicates, in which each of them will help the client with some tasks regarding the IPO process. * 2. Terms of IPO: the underwriting syndicate will advise the client on the terms of the IPO. These terms will be incorporated into a preliminary registration statement, which will be submitted to the Securities and Exchange Commission. This form is called “red herring” which states that “the company is not attempting to sell the security before the registration is approved” (Bodie, Kane, & Marcus). The statement is called “prospectus” when it is finally approved by the SEC. * 3. Buying and reselling of securities: In a normal setting, the company will not sell its securities to the public directly. In fact,...
Words: 1203 - Pages: 5
...is also a lot of confusion. Rather than deal directly with the dozens of specific questions posed at these two events, this Netpreneur.org special report will provide an overview of some case concepts which I hope will be helpful to you in the growth and financing of your business. OVERVIEW AND HISTORY OF VENTURE CAPITAL Today's institutional venture capital industry has its roots at the turn of the twentieth century, when wealthy families like the Rockefellers and DuPonts provided risk capital to small growing companies. Following World War II, a few institutional venture capital companies were formed, the most notable being American Research and Development Corporation in Boston in 1946. Today, there more than 800 venture capital investment firms providing capital to more than 2,200 early-stage and rapidly growing companies each year although the trend has slowed in 2000 and 2001 during the economic and technology downturns. Owners and managers of early-stage growing companies often have mixed views...
Words: 6878 - Pages: 28
...Closed-End Funds Understanding Leverage in Closed-End Funds The concept of leverage seems simple: borrowing money at a low cost and using it to seek higher returns on an investment. Leverage as it applies to a closed-end fund is more complex, and the landscape in which leverage operates has changed dramatically in the past few years. This makes it important for financial advisors and investors to refresh their understanding of leverage and leveraged closed-end funds. LIKE ARCHIMEDES’ LEVER, leverage in an investment offers the opportunity to effectively magnify one’s initial input. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE Why are so many closed-end funds leveraged? A closed-end fund is a publicly-traded entity that invests in a variety of securities, such as stocks and bonds. A closed-end fund raises capital by selling a fixed number of shares at one time through an initial public offering (IPO). Once the initial capital is raised, the fund is “closed” and no longer directly offers its shares for sale. Instead, following its IPO, the fund’s shares trade on a secondary market, such as the NYSE or the NASDAQ. Unlike a typical mutual fund, closed-end fund shares are neither created nor redeemed depending upon investor activity, and thus have no impact on management of the underlying assets in the funds portfolio. This means the fund is better able to maintain a steady asset base.1 Because regulations limit the ratio of a fund’s leverage...
Words: 2744 - Pages: 11
...Cash: The Maclins do not need any immediate cash or specific cash reserve fund. Moreover, near cash investments generate very low returns which create a shortfall in the fulfillment of their return requirement. Also, their liquidity needs are low, and a small allocation is needed to be considered for emergencies since their income will cover their annual shortfall in their living expense. Therefore, the Maclins should minimize their quantum investment in cash securities. The lowest allocations between 0% to 3% will most appropriate for them. Investment in Barnett Common Stock: the investment in this stock is relatively higher because it has a higher volatility which can ultimately produce negative returns in the future. Their below average...
Words: 260 - Pages: 2
...Venture Capital and Private Equity Contracting This page intentionally left blank Venture Capital and Private Equity Contracting An International Perspective Douglas J. Cumming Associate Professor and Ontario Research Chair, York University – Schulich School of Business, Toronto, Ontario, Canada Sofia A. Johan Senior Research Fellow, Tilburg Law and Economic Centre (TILEC), Tilburg, The Netherlands AMSTERDAM • BOSTON • HEIDELBERG • LONDON • NEW YORK • OXFORD PARIS • SAN DIEGO • SAN FRANCISCO • SINGAPORE • SYDNEY • TOKYO Academic Press is an imprint of Elsevier Academic Press is an imprint of Elsevier. 30 Corporate Drive, Suite 400, Burlington, MA 01803, USA 525 B Street, Suite 1900, San Diego, California 92101-4495, USA 84 Theobald’s Road, London WC1X 8RR, UK Copyright © 2009, Elsevier Inc. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, recording, or any information storage and retrieval system, without permission in writing from the publisher. Permissions may be sought directly from Elsevier's Science & Technology Rights Department in Oxford, UK: phone: ( 44) 1865 843830, fax: ( 44) 1865 853333, E-mail: permissions@elsevier.com. You may also complete your request online via the Elsevier homepage (http://elsevier.com), by selecting “Support & Contact” then “Copyright and Permission” and then “Obtaining Permissions.” Library of Congress Cataloging-in-Publication...
Words: 236635 - Pages: 947
...others and some you need to know in order to have an understanding of the basics of finance. Some of the important terms are finance, efficient market, primary market, secondary market, risk, security, stock, bonds, capital, debit, yield, return on investment, and cash flow. If you want to be in the business work of finance, or in the business world in general one must know and come to understand these terms. Finance According to dictionary.com finance is the management of revenues; the conduct or transaction of money matters generally, especially those affecting the public, as in the fields of banking and investment. Finance in general is how companies and people manage their money. ("Dictionary", n.d.). Efficient Market According to investopedia market efficiency championed in the efficient market hypothesis (EMH) formulated on a particular stock and or bond market. Thus, according to the EMH, no investor has an advantage in predicting a return on a stock price because no one has access to information not already available to everyone else. ("Investopedia", 2012). Primary Market Investopedia defines primary market as a market that issues new securities on an exchange. Underwriting groups, which consist of investment banks that will set a beginning price range for a given security and then oversee its sale directly to investors, facilitates primary markets. The role that primary markets play in finance is that it allows investors to get a first crack at a new...
Words: 1001 - Pages: 5
...others and some you need to know in order to have an understanding of the basics of finance. Some of the important terms are finance, efficient market, primary market, secondary market, risk, security, stock, bonds, capital, debit, yield, return on investment, and cash flow. If you want to be in the business work of finance, or in the business world in general one must know and come to understand these terms. Finance According to dictionary.com finance is the management of revenues; the conduct or transaction of money matters generally, especially those affecting the public, as in the fields of banking and investment. Finance in general is how companies and people manage their money. ("Dictionary", n.d.). Efficient Market According to investopedia market efficiency championed in the efficient market hypothesis (EMH) formulated on a particular stock and or bond market. Thus, according to the EMH, no investor has an advantage in predicting a return on a stock price because no one has access to information not already available to everyone else. ("Investopedia", 2012). Primary Market Investopedia defines primary market as a market that issues new securities on an exchange. Underwriting groups, which consist of investment banks that will set a beginning price range for a given security and then oversee its sale directly to investors, facilitates primary markets. The role that primary markets play in finance is that it allows investors to get a first crack at a new...
Words: 1001 - Pages: 5
...CHAPTER 13 REPORTING AND ANALYZING INVESTMENTS Summary of Questions by Objectives and Bloom’s Taxonomy Item | SO | BT | Item | SO | BT | Item | SO | BT | Item | SO | BT | Item | SO | BT | True-False Statements | 1. | 1 | K | 8. | 3 | C | 15. | 4 | C | 22. | 5 | C | 29. | 4 | | 2. | 1 | C | 9. | 3 | C | 16. | 4 | K | 23. | 6 | K | 30. | 5 | | 3. | 2 | K | 10. | 3 | K | 17. | 5 | C | 24. | 6 | K | 31. | 6 | | 4. | 2 | C | 11. | 3 | C | 18. | 5 | K | 25. | 6 | C | | | | 5. | 2 | C | 12. | 3 | K | 19. | 5 | K | 26. | 1 | | | | | 6. | 2 | C | 13. | 3 | K | 20. | 5 | C | 27. | 2 | | | | | 7. | 2 | K | 14. | 4 | K | 21. | 5 | K | 28. | 3 | | | | | Multiple Choice Questions | 32. | 1 | K | 47. | 3 | K | 62. | 3 | K | 77. | 4 | C | 92. | 6 | C | 33. | 1 | K | 48. | 3 | K | 63. | 3 | K | 78. | 5 | K | 93. | 6 | K | 34. | 1 | K | 49. | 3 | AP | 64. | 3 | K | 79. | 5 | K | 94. | 6 | C | 35. | 1 | K | 50. | 3 | AP | 65. | 3 | K | 80. | 5 | K | 95. | 1 | C | 36. | 1 | K | 51. | 3 | K | 66. | 3 | K | 81. | 5 | C | 96. | 2 | AN | 37. | 2 | K | 52. | 3 | K | 67. | 3 | K | 82. | 5 | K | 97. | 2 | C | 38. | 2 | C | 53. | 3 | C | 68. | 3 | C | 83. | 5 | K | 98. | 3 | AN | 39. | 2 | AP | 54. | 3 | C | 69. | 3 | C | 84. | 5 | K | 99. | 3 | AP | 40. | 2 | AN | 55. | 3 | K | 70. | 3 | C | 85. | 5 | AP | 100. | 3 | AP...
Words: 10433 - Pages: 42
...that should not be taken lightly. It requires the careful planning and research of the company that is a potential investment. It is the responsibility of a financial manager to ensure that his client is making a wise and responsible investment decision. The idea is to invest in a company that has growth potential and that will in the future generate a profit to essentially create a sound invest return for the investor. Introduction Deciding to invest is a decision that should not be taken lightly. Investing can make or break you financially depending on how you play the cards you are dealt. The purpose of this paper is to provide a rationale for the U.S. publicly traded company indicating the significant factors driving the decision to invest in the company. A profile of the investor that is suitable will also be provided. Five financial ratios will be used to analyze the past three years of the company’s financial data and the financial health of the company will be determined. Based on the financial review of the company, the risk level paired with minimization strategies will be determined. The paper will conclude with recommendations of the stock as an investment opportunity. Investments come in many forms. The key to any investment is knowing what type of investor you are and knowing exactly how you want to see your returns from your investment. A financial manager’s role is to educate the client about the risks and rewards of investing in publicly owned companies...
Words: 2541 - Pages: 11
...about the type of product she wanted to produce, how to package it, and the resultant quality of the product. Julia also made considerations for the type of people she would like to have work for her new company. Her determination allowed her to find suitable people to help her develop a preliminary offering of her baby food. The new baby food was received well in a small-scale study. Thereafter, Julia and her team needed to raise funds. They considered three options: corporate bonds, preferred stock, and common stock. The financial characteristics of potential investors, the return rates for each option, the market, and the future inflation rate were all evaluated regarding impact on getting the company off the ground. This case study evaluation will serve to discuss the potential investment into Starting Right Corporation by others with varying perceptions of the possible success of the business. The development of legal documentation for the business and investment alternatives for parties who are risk-averse and risk-seekers will also be discussed herein. Sue Pansky, a retired elementary school teacher, is considering investing in Starting Right. She is very conservative and is a risk avoider. What do you recommend? Since Sue is cautious about change or innovation and wants to limit her exposure to loss, I would recommend that she evaluate her options and determine the possible outcomes to any potential decision she makes about opting in to investment in Julia’s...
Words: 1473 - Pages: 6
...finance their business start-up costs and help pay for expansion and their ongoing business activities. Since stock is a form of equity financing, it does not have to be repaid and dividends are not necessary. (p. 325) 2. Investors purchase stock for the three reasons listed below. Explain how each reason could help you reach your investment goals. |Dividend income | |Dollar appreciation | |Possible increased value from stock splits | Basically, there are three ways that an investor can make money with a common stock investment: (1) income from dividends; (2) dollar appreciation of stock value; and (3) possibility of increased value from stock splits. Since dividends are generally paid on a quarterly basis, dividend income provides a steady source of income for investors. Stocks can also provide growth if they increase or appreciate in value. Finally, there is the possibility that a stock will increase in value because of stock splits. Be warned: There are no guarantees and stock splits are not an overnight way to gain investment wealth. (pp. 325 -329) 3. Why do corporations split their stock? Is a stock split good or bad for investors? A corporation splits their stock because management has a theoretical ideal price range for the firm’s stock. If the market price of the stock rises above the ideal price range, a stock split brings the market price back...
Words: 3127 - Pages: 13
