Importance of Finance
Essay Preview: Importance of Finance
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Kristin Earhardt is a young woman who has a $15,000 to aggressively invest in the market. There are several investment options available to her. The main ways to invest are:
common stock
bonds
preferreds
convertibles mutual funds
exchange traded funds
real estate.
Common stock is a form of equity where each share of stock represents a fractional ownership position in the corporation. Any individual can purchase shares of common stock from any corporation. The second form of investment is bonds. Bonds are liabilities that are issued by corporations and the government that pays interest on the amount invested. A preferred security is issued just like stock, but has a fixed dividend rate that is paid before the dividends to holders are paid. Next there are convertible securities is defined as a fixed-income obligation (usually a bond) that carries a conversion feature permitting the investor to convert it into a specified number of shares of common stock. The next forms of investments are the mutual funds and exchange traded funds. Mutual funds sell shares to investors who then become part owners of the funds securities portfolio that can only be exchanged at the ends of the day. Exchange traded funds are very similar to mutual funds however they can be traded at any point during the day, and have better tax rates than mutual funds. The last way one can invest money is in the real estate market. ( Scott, 2011)
Real estate can be purchased in the form of commercial property or personal land where a house may be built. Since Kristin is young and has a considerable amount of money to invest she can afford to aggressively invest.
In order to determine which form of investment would be best it is important to look at each investment type. Blue-chip stock is a lot less risky than other stocks and is defined as the stock of a well established and financially sound company that has demonstrated its ability to pay dividends in both good and bad times. Growth stocks are shares in a company whose earnings are expected to grow at an above average rate relative to the market. Next are speculative stocks. Speculative stock is a general term describing a stock with high risk relative to any potential positive returns. Speculative stocks are often purchased by those who believe the stock will appreciate in value without performing a detailed analysis. The next investment is corporate bonds. Corporate bonds are debt securities issued by a corporation and sold to investors. The backing for the bond is usually the payment ability of the company, which is typically money to be earned from future operations. The last type of investment is municipal bonds. Municipal bonds are issued by a city or other local government, or their agencies.( Scott, 2011)
After reviewing the information regarding Kristin it is evident that she does care about having a return on her investments however she still wants to be responsible