1. Sue Pansky, a retired grade-school teacher, is considering investing in Starting Right. She is very conservative and is a risk avoider. What do you recommend?
I feel it would be in Ms. Sue Pansky’s best interest to invest in corporate bonds. This is based mostly upon her conservative nature, and how she avoids risks (Understanding Risk, n.d.). If Ms. Pansky invests the amount of $30,000, Ms. Julia will guarantee that $20,000 will be secure, so she would only risk losing $10,000 (Render, Stair, & Hanna, 2012). The upside of investing in corporate bonds is that for at least the next five years, there will be a guarantee of 13% return on investment making it a rather safe investment for Ms. Pansky (Render, Stair, & Hanna, 2012).
2. Ray Cahn, who is currently a commodities broker, is also considering an investment, although he believes that there is only an 11% chance of success. What do you recommend?
Mr. Ray Cahn should definitely choose the corporate bond option (Understanding Risk, n.d.). The reason for this is in the case of preferred stocks, the expected return on investment is 94 percent (11% x 4= 44% + 50%= 94% (Render, Stair, & Hanna, 2012). As it relates to common stocks, Mr. Cahn should only expect to see 88 percent return on his investment (Render, Stair, & Hanna, 2012).
3. Lila Battle has decided to invest in Starting Right. While she believes that Julia has a good chance of being successful, Lila is a risk avoider and very conservative. What is your advice to Lila?
With the given information about Ms. Battle above, common stock and corporate bonds will be her best options (Understanding Risk, n.d.). She is optimistic about the stock having success, yet a little apprehensive and not much of a risk taker (Render, Stair, & Hanna, 2012). Taking this hybrid approach will allow for Ms. Battle to have flexibility, without taking outrageous risks as it relates to investing in Starting Right.
4. George Yates believes that there is an equally likely chance for success. What is your recommendation?
Mr. George Yates should definitely invest in common stocks. The reason for this is that if Mr. Yates invests in preferred stocks, then the return on investment at the conclusion of five years would be 250% (4 x 50%= 200% + 50% = 250% (Render, Stair, & Hanna, 2012). Common stocks would yield an investment return of 8 x 50%= 400% (Render, Stair, & Hanna, 2012). The goal of any investment is to maximize the return on investment, thus common stock investment would be best for Mr. Yates.
5. Peter Metarko is extremely optimistic about the market for the new baby food. What is your advice for Pete?
For Mr. Peter Metarko, he should definitely invest in common stocks. Based off his extreme optimistic view on new baby food in the market, with full participation, he should expect to get maximum returns in full of his investments by13% for five years (Render, Stair, & Hanna, 2012). In contrast, if he goes the preferred stocks route, he will only see returns on his investments by an increased factor of four