What Are The Advantages And Disadvantages Of Investment In Shares

capital gains for cash received, on the other hand, they can enjoy the profit when share

“Given the choice, individual shareholders of a corporation prefer to receive their return on investment by way of dividends, rather than from the sale of shares at a profit.” Is this statement true? Explain.

The return on a stock investment comes from dividends and price appreciation. Although neither is guaranteed, both have the potential for growth in the future. This is in distinct contrast to investments in debt vehicles that guarantee future payments but offer little or no possibility of a return that 's higher than promised.

Bonds require a minimum amount of money to purchase and a minimum length of time to hold on to the bond.

| |A bond debenture is a legal document that details all of the conditions relating to a bond issue. |

Jo Bower owns 150 shares of Data General stock. She purchased the stock for $24 a share. She sold her stock for $30 a share. The commissions required to buy and sell her stock totaled $120. Assuming that she received no dividends during the time she owned the stock, what is her total return for this transaction?

The return on equity ratio measures how well a company is using its owner 's investments to generate after tax profits. Investors like to see a high return on equity since it indicates the company is using the owner 's investments efficiently to generate after tax profits, (Schermehorn, J, et al, 2004). Different industries requires different percentage of return on equity as some industries need to generate high return on the basis that less capital is invested, (Palepu et al. 2010). Return on equity has increased from 3.39% in 2011 to 5.46% in 2012 this is consistent with the growth strategy and cost efficiency strategy. However the strategic cost played a significant part in the lower net income of 2011 for example even though the total equity increased by 4.70% it is not as large as the 68.44% increase in the profit after tax. Return on equity has three parts; operation efficiency, assets used efficiency and equity multiplier.

When you buy stock you are purchasing a part of a corporation. The ownership of the corporation is divided into shares of common

Being a stockholder can have great rewards like a viable source of income, or an eggs nest for retirement, however it does have its downsides as well. Owning stock in a corporation bears the risk of losing all one’s investment if the company goes bankrupt. Aside from financial benefits, owning stock allows stockholders to have a voice (however small it may be) in the company’s direction.

The Return on Equity is an easy way for the organization to gauge money invested from common stock, from both owners and the organization, this shows the rate of return on the money invested. The Return on Equity show the organization?s capability to create profit form the shareholders equity, this is calculation is done by subtracting assets from the liabilities (MarketWatch, 2016). The Northrop Grumman Corporation uses the Return on Equity to show how well the organization is investing their funds to generate growth, as well as comparing their profitability with other companies in the same industry.

It provides an evaluation of the bond issuer’s financial strength and ability to pay back the bond’s principle and interest. The bond rating also provides investors with some sense of security when investing in a particular firm. A higher bond rating implies a lower likelihood for the firm to default. Investors would feel more secured investing in such a bond, thus demanding a relatively lower rate of return. As such, high rated bonds enable the issuer to enjoy a lower cost of borrowing. A lower bond rating, on the other hand, serves as a negative signal to investors on the firm’s ability to repay debt obligations.

A bond is a "security" which gives the holder a financial claim on the issuer. This claim protects the holder in circumstances in which the issuer is unable to pay the amount due. It is made formal by the "trust indenture", a legal document, which specifies all of the bond's features and the legal rights and obligations of all the parties to the agreement (http://www.finpipe.com/bndchar.htm).

Many government related institutions issue bonds, some supported by the revenues of a specific institution and some guaranteed by a government sponsor. For example, in Canada they have a bank that issue bonds that are guaranteed by the

Though stocks have statistically delivered higher returns in the long term compared to bonds, bond prices are less volatile. The dividends paid out on stocks are uncertain and depend on the distributable profits of the company, the company’s investment plans and cash needs for the same, and other such factors. On the other hand, bonds generally make a pre-specified interest payout to all bondholders periodically, thereby ensuring an assured, known cash-inflow in the hands of a bond-holder. Further, on maturity of the bond, a pre-determined principal amount is paid out by the issuer to the bondholder, to purchase back the bond. Hence, a bondholder who holds the bond to maturity, knows exactly how much he /she will receive both by way of interest as well as principal on maturity. This is completely untrue for stocks, where neither the dividend flow nor the capital appreciation is predictable with certainty.

Gittman (2004, pp. 312) divided stock into two types, such as common stock and preferred stock. He also showed that dividends are the outcome of investment. So, common stocks are an ownership claim against primarily real or productive asset (Higgins, 1995), but he also said that if the company prospers, stockholders are the chief beneficiaries, if it falters, they are the chief losers. Smith (1988) presented that stocks are one of the most popular forms of investment. People buy stocks for various reasons: some are interested in the long-term growth of their investment by buying low priced stock of a new company in the hope of substantially growth of share price over the next few years. Another reason he suggested that in a well established firm stockholders expect the stock growth will be stable over the long run. (Smith,1988).