Question

In: Finance

1.You need $1,000,000 to expand your business. Which method, debt or equity financing would you pursue...

1.You need $1,000,000 to expand your business. Which method, debt or equity financing would you pursue and why?

2.Is now a good time to invest in the stock market? Why or why not?

3.You have just inherited $1,000,000. What would you do with the money and why?

4.What questions should you ask before investing in a mutual fund?

5.What questions should you answer before investing in stocks?

Solutions

Expert Solution

While both debt and equity investments will results to good returns, they have differences with which we should be aware.

Depending on your investment goals, these differences may strongly influence our preferences. All investments come with risk. However, debt instruments offer less risk than equity investments. our investing targets may favour equity investments, if we are seeking striking growth or profit potential. Conversely, we might focus on debt instruments when you prefer consistent income and less risk.

Investment in Stock Market

Any time is a good time.

According to a good book on investing by Charles Ellis, Winning the Loser's Game, your best bet would be forgetting about picking securities, sectors, apps or purchase/sale timing and just invest in one of the broad market index funds (S&P, NASDAQ, DOW).

All what we need is an understanding of the market, and it increases on a daily basis.

Even the professionals rarely beat the market. All what we can do is just put the money there and wait for your long term to earn at least minimum return on investment.

If we are starting early and can make regular investments, we will do well at dollar cost averaging (buying regardless of what the market is doing) because we will be buying more when the price is down and less when the price is up.

The only difference between buying during a bull or a bear market is that buying during a bull market probably means you will have to wait longer for your return.

There has already been a Nobel Prize in Economics awarded to an economist in the 90s who proved that stock pricing was a random walk (unpredictable).


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