Microeconomics Coursework Example | Topics and Well Written Essays - 2250 words

Microeconomics - Coursework ExampleKeeping the cash will mean there will be no gain, but unity enjoys a high liquidity preference of their cash. How ever so, the future of the market performance is oblique. In the event inflation hit the economy, the m wholenessy will have greatly lost its appreciate and superstar would have wished making an earlier investiture on any stock or bonds could have been a better option. Investing their m cardinaly in either stock or bonds is always dilemmatic. An individual is ever sure of safety of money value invested in governing body bonds than in corporate stock. The value of government bonds depends on the performance of gross domestic product it could either decrease or increase annually. Assuming a GDP of 7%, the value of the bond that year would be similar to GDP. In much(prenominal) cases, the stock value is always higher than that of bond by 1% or 2%. A person who inflexible to invest in corporate stock that year will enjoy accrued savi ngs of their investment at either 8% or 9% while one who invested in bonds will except enjoy 7%. The difference of the twain becomes the risk premium. Risky situations have a high attach risk premium. There are many mechanisms an individual can explore to minimize risk. To begin with, one can just say no. For example, uncertain luxurious investments to improve ones location in the society can be avoided. One may have a strong confide to purchase the most coveted natural Cornflower Blue Sapphire.There are two possible outcomes buy a genuine sapphire or duped with a copy. Bearing in mind that one lacks the cognitive content to distinguish between a genuine and a counterfeit, there are two underlying benefits of change proportions. If one goes ahead and it is a genuine one, he becomes $ 120 rich otherwise, $10 richer. In such scenario, saying no would forfend possible looming risk. Secondly, one can obtain factual information earlier making a decision. An investor who is inte rested in a particular corporate stock and lacks information or have scanty facts regarding the stock performance can inquire before putting life savings into it. Information gathered in light of the corporate stock performance in the past fewer years or quarters may lead one to make informed decisions. A make indication of a possible decline in the stock value that particular period would dissuade one from investing because at the end of the day everyone wants to see the value of their assets rising and with great stability. When one obtains information about something whether it has monetary value or not, the decision made will ultimately avert risk associated with it. Thirdly, an individual can diversify the risk. This can be done when the two events are utterly negatively correlated (Perloff, 2011). A perfectly negatively correlated event according to Perloff refers to an event where one of the two possible outcomes must happen with great certainty. Assuming the government w ants to give the tender to either IBM or Apple to supply its various departments with computers and other accessories during the next financial year. There are two possible outcomes a provide and a loss. It is absolutely clear one company must win the tender. When an individual purchase the shares of the winning company, each share value is $50 otherwise $10. One may then decide to purchase an equal share of each company just to be at the fair edge. Assuming a purchase of 5 shares, the total