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  • Running Head: INVESTMENT 1

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    Bharat Koirala
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    This document discusses factors to consider when making long-term investments. It notes that government bonds are a long-term debt issued by the government that pays interest periodically and returns the principal at maturity. While US government bonds have less risk, other assets like callable bonds or those subject to market interest rate fluctuations carry higher risk. The document also mentions that modern investments are made not just based on future yields but also to outperform the market and avoid taxes. It concludes that a balanced mix of long- and short-term assets is smarter than investing in only one type of asset to lower risk while still achieving returns.

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    This document discusses factors to consider when making long-term investments. It notes that government bonds are a long-term debt issued by the government that pays interest periodically and returns the principal at maturity. While US government bonds have less risk, other assets like callable bonds or those subject to market interest rate fluctuations carry higher risk. The document also mentions that modern investments are made not just based on future yields but also to outperform the market and avoid taxes. It concludes that a balanced mix of long- and short-term assets is smarter than investing in only one type of asset to lower risk while still achieving returns.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    20 views4 pages

    Running Head: INVESTMENT 1

    Uploaded by

    Bharat Koirala
    This document discusses factors to consider when making long-term investments. It notes that government bonds are a long-term debt issued by the government that pays interest periodically and returns the principal at maturity. While US government bonds have less risk, other assets like callable bonds or those subject to market interest rate fluctuations carry higher risk. The document also mentions that modern investments are made not just based on future yields but also to outperform the market and avoid taxes. It concludes that a balanced mix of long- and short-term assets is smarter than investing in only one type of asset to lower risk while still achieving returns.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    Running Head: INVESTMENT 1

    Investment Discussion

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    Running Head: INVESTMENT 2

    Investment Discussion

    Investment in a long-term asset is a vital decision affected by the various factors such as years to

    maturity, coupon rate, return at the end of the term, etc. Government bond refers to a long-term

    debt issued by the government for which the government pays interest on due date and principal

    amount at maturity (Appel & Appel, 2010). Other long-term assets could be stock, treasury

    notes, etc.

    Having a high tolerance for risk, I would invest in the long-term asset considering the return in

    the future period despite the lower interest rate at the current period. Although the bond prices

    are high, the current investment in the bond can reduce the taxable amount of the income by

    investing in tax-exempt bond or another asset. The bold holder gets periodic interest, but the

    amount at the time of maturity can vary due to market interest fluctuations creating higher risk.

    Although assets like US government bond have higher safety, there are several other assets with

    high risk due to uncertainty in return, inflationary pressures affecting future return, etc. (Jones &

    Alexander Hamilton Institute (U.S.), 1918). Some investments such as callable bonds are also

    made with the intention to sell at higher rates and buy others at lower prices. After the fall in

    prices of the bond, the bond will start trading at a discount. Moreover, the reduction in liquidity

    in such markets leads to a higher risk to get a future return.

    Today’s investment is not only made based on future yield but also with the purpose of

    surpassing market average, investing higher than the competitors, avoiding higher taxes on

    incomes, etc. The investment in short-term assets like certificates of deposit, etc. are more

    popular due to the lower time period of return. However, with long-term financial goals, it is

    profitable to invest in long-term maturities. The smarter way could be deciding on an appropriate
    Running Head: INVESTMENT 3

    mix of investment rather than in similar assets and get higher returns with a lower risk of losing

    everything.
    Running Head: INVESTMENT 4

    References

    Appel, M., & Appel, M. (2010). How to avoid bond investment risk.

    Jones, E. D., & Alexander Hamilton Institute (U.S.). (1918). Investment. New York: Alexander

    Hamilton Institute.

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