Question

1. Discuss the pros and cons of the following:
   1. Stock market investing
   2. Savings
   3. Bonds

Answer 1

A: Stock market investing represents investing in the shares of different companies which are listed on the stock exchange. The biggest advantage of stock market investing is that there is potential for immense gain in the form of increase in the stock prices. Also shareholders receive dividend when the company declares dividend and this increases their gain. The biggest disadvantage is that the share prices can fall to zero value. There may be no dividend since that is at the discretion of the management.

b: Savings represent saving funds rather than spending them. The advantage of savings is that it can be invested to earn greater profits. It also gives greater security to the person saving money and can act as cover in case of emergency when finances are required suddenly. The disadvantage is that the person is not able to spend on necessities and things that he may require or desire. If uninvested, the savings represent opportunity loss.

c: The benefit of bonds is that a fixed rate of return is received on them. The bondholder is a creditor of the company and hence he is repaid on priority at the time of liquidation. The disadvantage of bonds, is that only a certain rate of return is received even in times of excess profits.