Looking for the answer to the question below related to Financial Management ?
Investment is done with the following objective
|A. stability of income ,capital growth
B. quick returns and short term profit
C. not for collateral value
D. not for tax benefits
The Correct Answer Is:
- A. stability of income ,capital growth
The correct answer is A. Stability of income and capital growth. Investment is typically done with the primary objective of achieving stability of income and capital growth over time. This option encompasses two key aspects of investment: generating a steady stream of income and growing the initial capital invested.
Let’s delve into why this is the correct answer and why the other options do not fully capture the essence of investment objectives:
A. Stability of Income and Capital Growth:
1. Stability of Income:
Many investors seek stability in their investments, especially when they rely on those investments to provide a regular income stream. For example, retirees often look for investments that offer steady income to cover living expenses.
This income stability can come from sources such as dividend-paying stocks, interest from bonds, or rental income from real estate investments. A stable income stream provides financial security and helps investors meet their ongoing financial needs.
2. Capital Growth:
Capital growth is another essential aspect of investment. Investors aim to grow their initial capital over time by choosing investments that have the potential to appreciate in value.
This growth can come from an increase in the market value of stocks, the appreciation of real estate, or the rise in the price of other assets. Capital growth allows investors to build wealth, achieve long-term financial goals, and hedge against inflation.
Now, let’s briefly explain why the other options are not fully accurate:
B. Quick Returns and Short-Term Profit:
While some investors may seek quick returns and short-term profits, this objective is not representative of all types of investments. Such an approach is often associated with speculation rather than traditional investment.
Quick returns and short-term profit-seeking are riskier strategies that may not align with the goals of stability and long-term capital growth. While there are short-term investment opportunities, they typically carry higher levels of risk and may not provide the same level of stability.
C. Not for Collateral Value:
This option suggests that investments are not made for collateral value. However, collateral value can be an important consideration in some investment decisions, particularly when investors are using assets as collateral to secure loans or credit. Assets like real estate and securities can have collateral value, and investors may utilize this value strategically in their financial planning.
D. Not for Tax Benefits:
While tax benefits may not be the primary objective of investment, they are still a significant consideration for many investors. Tax-efficient investing strategies, such as tax-advantaged retirement accounts or capital gains tax planning, can enhance the overall returns and financial outcomes of investments. Investors often seek to minimize tax liabilities legally while optimizing their investment returns.
In conclusion, the primary objective of investment is typically to achieve both stability of income and capital growth. These objectives provide financial security, support ongoing income needs, and enable the long-term growth of wealth.
However, it’s important to recognize that investment objectives can vary among individuals and may depend on factors such as risk tolerance, financial goals, and time horizons. Some investors may prioritize short-term profits or tax benefits, but stability of income and capital growth remains a fundamental and widely pursued investment objective for long-term financial success.