Mr. Rohit is an individual investor who invests his funds in securities. He depends on investment income and does not want to take any risk. He is interested in a definite rate of income and the safety of principal.
a) Name the type of security that Mr. Rohit will opt for.
b) What does he receive as a return on his investment?
c) Is the return on investment that he receives fixed or fluctuating?
Answer (1)
To address Mr. Rohit's investing preferences, let's explore the options available to him, focusing on securities that fit his risk and income preferences:
(a) Type of Security : Since Mr. Rohit is seeking a safe investment with no risk and wants a definite rate of income, the best type of security for him would be bonds , particularly government bonds . Government bonds are considered low-risk investments because they are backed by the government, ensuring the safety of the principal.
(b) Return on Investment : When Mr. Rohit invests in government bonds, he receives interest payments as his return on investment. These interest payments are made periodically, usually semi-annually or annually, depending on the terms of the bond.
(c) Nature of Return : The return Mr. Rohit receives on government bonds is typically fixed . This means the interest rate is set at the time of purchasing the bond and does not fluctuate throughout the duration of the investment. This provides him with a consistent and predictable income stream.
Overall, government bonds would be an ideal choice for Mr. Rohit, aligning with his need for security and a fixed income.
