Question

I could use some help with this questions: Are investors any different to ordinary buyers of stocks and bonds in seeking some assurance of liquidity? Give at least two reasons why they are and two reasons why they are not.

Answer 1

Here there are different types of investments an investor can choose.

If he go with the stocks like equity, Preference shares.he can invest in equity shares of a company .Equity holder will become the owner of the company.Preference share holder will get preferred and fixed percentage of return from the company.Equity holder will have high risk.Some times he may get return or not, based on the performance of the company.if the company incurrs losses equity holder will not get anything.if company earns huge profits he will get maximum return he will get..

If an investor invests in bonds , he will be risk free with certain fixed rate of interest and agreement with the bonds.The bonds may be long term or short term.company will provide fixed percentage of interest to the bond holder.

Equity holder will act as an owner of the company,whereas bond holder will act as an creditor of the company.

Liquidity of the company means, where the company can return their investments with its performance and it's market in the industry.High liquidity will leads to huge investments from investors.Then company will decide the cost of investment.Liquidity will decide the existence of industry in the market.