Question

QUE 1a) Discuss what is tolerance for risks in the investment market.

   b) Explain the reasons why stocks are bought in the investment market.

c) Reasons why non- performing companies in the investment market are sold out to performing companies.

Answer 1

1 a. Tolerance for risk relates to amount of Market risk i.e. volatility, ups & down in market that an investor can tolerate. It is nothing but an investor's ability to tolerate risks.

There are various types of investment options, few provide steady returns & few investments which are highly volatile can provide high or no returns infact if you have not done proper market study investor can even incur loss.

Tolerance for risk can further be classified in 3 types:

Aggressive risk tolerance : Proper understanding of securities allows investors to purchase volatile instruments, aggressive investors get highest returns by taking maximum risk.

Moderate tolerance for risk: Moderate investors follow balanced approach & invest in less volatile bonds, in moderate tolerance for risk investors get good reruns by taking moderate risk.

Conservative tolerance for risk: These type of investors goes for no volatile investment portfolio, returns are low with low risk.

1 b. stocks are bought in investment market for various reasons i.e. to make money, dividends, outflank inflation, diversify portfolio, minimizing loss, easily accessible money,

1 c. Non performing companies in the investment market are sold to performing companies to reduce the risk of insolvency and to sustain the stock price in market. Stock price can drop drastically of non performing companies in the investment market if it is not sold to performing companies.