Q1. Your friend is interested to invest Rs. 1, 00,000/- in financial asset but he don’t have a proper knowledge about investment. So suggest him different types of financial instruments.
Ans:
Introduction:
Investing in financial assets can be overwhelming if you need more information about the various investment opportunities available. However, it is a beautiful way to build wealth over time and is one of the best ways. It is crucial for you as a friend to direct them toward making educated decisions regarding their investments. To assist your friend in making the best decision, we will provide a variety of financial instruments along with examples of each sort and the benefits and drawbacks associated with each.
Concept & Application:
Here are the few types of Financial Instruments:
Fixed Deposits: Fixed Deposits, also known as FDs, are one of the most common ways for people in India to put their money to work. You can earn interest on the principal amount you invest in this low-risk investment. The interest rate on FDs changes depending on the duration of the account, which can range anywhere from seven days to ten years.
Pros: The benefits include a low-risk investment, guaranteed returns, and a simple opening process.
Cons: Negatives have low rates of return, inflexible early withdrawal policies, and taxable earnings.
Conclusion:
The process of financial preparation should always include investing in various financial instruments. Investors must choose the appropriate investment by considering their risk tolerance, objectives, and long-term financial goals. Before deciding on an investment strategy, it is critical to do one’s homework and get the opinion of a financial expert. The choices above represent a selection of the numerous financial instruments available in India and can assist consumers in accomplishing their monetary objectives.
Q2. Every investment has some kind of risk. For security of your investment it is necessary to measure this risk. Discuss how can you measure the risk?
Ans
Introduction:
Investing in financial instruments is a significant decision that comes with various dangers. Therefore, to make an informed choice regarding an investment, evaluating the risks associated with the investment is essential. One definition of risk is the probability of incurring financial loss or falling short of anticipated returns.
Concepts and Applications:
Standard Deviation:
The standard deviation is a statistical tool used to measure the degree to which the return on investment varies from one period to the next or is volatile. A standard deviation helps analyze and contrast the dangers associated with various assets. When assessing risk, a more significant standard deviation indicates a higher level of exposure, while a lower standard deviation indicates a lower level of exposure. If a company has a return of 10% on average and a standard deviation of 20%, then the return on that stock is likely to range anywhere from -10% to 30%.
Conclusion:
When making educated judgments about investments, one of the essential aspects is accurately assessing the risks involved. The three risk measurement tools will be addressed in this essay: the standard deviation, beta, and value at risk.
Q3a. After saving good amount of money it is necessary that this money should be invested at the right place. Miss Rena saves Rs. 10, 00,000 but not investing anywhere. Tell her the advantages of wealth management.
Ans
Introduction:
Various financial services, including investment advice, tax planning, estate planning, and risk management, are included in the broad category of “wealth management,” which refers to controlling an individual’s fortune. To assist individuals and families in maintaining and expanding their wealth, wealth management requires a comprehension of each client’s specific requirements and objectives.
Concepts and Applications:
Investment Planning: Individuals often seek the assistance of wealth management advisers to develop an investment strategy that caters to their unique requirements and objectives. This involves understanding their level of comfort with risk, time horizon, and financial goals.
Diversification: Wealth management advisers assist their clients in diversifying their investment portfolios by purchasing various assets, such as stocks, bonds, and alternative investments. Diversification is one of the essential aspects of wealth management. This makes it possible to increase the potential for long-term growth while simultaneously lowering the chance of experiencing a loss.
Conclusion:
People who have accumulated money and are interested in investing it appropriately must have their wealth professionally managed.
Q3b. ABC co. limited needs fund for growth & expansion of business. How ABC can build capital structure ratio?
Ans
Introduction:
The composition of a company’s long-term financing sources, such as loans and equity, is referred to as the business’s capital structure. It is of critical importance in determining the overall financial health of a business as well as its capacity to realize its long-term objectives.
Concepts and Applications:
A company’s capital structure is how it finances its day-to-day activities, considering its debt and equity. An adequately structured capital structure should strive to achieve the optimum proportion of debt-to-equity financing to optimize shareholder value and minimize financial risk. This can be accomplished by maintaining a healthy balance between the two types of financing. The following is a list of some of the fundamental ideas and practical implementations of capital structure:
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