Why don\'t American firms raise more money by selling stock or bonds? Suppose th

Question

Why don't American firms raise more money by selling stock or bonds? Suppose that you have decided dial the best and safest personal investment strategy for you is to make loans and hold bonds. Explain why putting money in the bank is probably a better way to accomplish that strategy than making the loans and buying the bonds yourself. Suppose that you have decided that the best personal investment for you is stock. Explain why purchasing shares in a mutual fund may be a better move than picking out and purchasing the stocks yourself.

Explanation / Answer

Ans.1.

Americans firm don't raise more money by selling stock or bonds becasue the cost of share capital is more than the cost of borrowings from banks.

Ans.2.

Putting money in bank is a better way because it reduces risk to individual, assure returns, and banks main assets is long term investment in bonds.

Ans.3.

Mutual funds offer many advantages that are particularly attractive if you have a small amount to invest, or if you don't have the time, experience, or inclination to manage your own investment portfolio. If you invest in an actively managed mutual fund, you get the benefit of the fund manager's professional expertise without the expense of hiring your own investment advisor (although you'll pay mutual fund fees and expenses).

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