Your Questions About Money Making Stocks

Sharon asks…

What is the best idea to multiply the money?

Ok, I will go to the bank to take some small loan like 2000 dls, and I want try multiply this money making something, like invest in something (not in stock right now), or buying and selling something.. but the thing is that I need to know what is the best options that I have?

Some of you can give me some idea, how I can make more money with this money

John answers:

Play the slots

Sandy asks…

A company is deciding whether to make a stock issue to raise money for an investment project?

A company is deciding whether to make a stock issue to raise money for an investment project which has the same risk as the market and an expected return of 20%. if the risk free rate is 10% and the expected return on the market is 15% the company should go ahead

a. unless the company’s beta is greater than 2.0
b. unless the company’s beta is less than 2.0
c. whatever the company’s beta

Please provide a detailed explanation. thank you

John answers:

Expected return given by the CAPM formula = RFR + Beta(Rmkt – RFR) = 0.10 + B(0.15 – 0.10)
= 0.10 + B(0.05) with any Beta greater than 2.0, the project (returning 20%) does not meet the 20% required return “threshold” given by CAPM. The answer is therefore “a”. If you think of the CAPM rate as a required rate of return, the decision to undertake the project will be based on whether the project meets or exceeds the required rate of return given by the CAPM formula. At a Beta of 2 or less, the project’s return (20%) exceeds the CAPM required return. Any Beta greater than 2 makes the required return HIGHER than 20% and thus the project’s return of 20% is LESS than the required return.

To clarify by example: if the Beta is 2.1, CAPM E(r) (aka required return) gives: 0.10 + 2.1(0.05) = 0.205, or 20.05%. The project only returns 20%, so the project would not be undertaken because it does not return the required return given by CAPM.

Hope I didn’t confuse you…

Donna asks…

How long will it take to make money in the stock market?

How long will it take to make money in the stock market? Does it take a while? How many shares do I have to buy.

John answers:

Count on about 8% per year on average. Of course, you can invest in things that will make more money faster, but those investments can also lose more money faster.

This isn’t the lottery.

Lizzie asks…

How can I effectively invest money and make a profit of it?

how can I effectively invest money and make a profit of it?thank you very much for your comments and suggestions.

John answers:

There is no safe way to invest money and make a large profit. Investing comes down to weighing your tolerance for risk — the more risk you can take, the better chance you have of making more money. So it basically comes down to how much money you have, how much you can afford to lose if things go wrong, and how long you have to invest it. Another thing to consider is if you have any other money invested; if so, you probably want to diversify and pick something unrelated. If you already own stocks, for instance, you should buy different types of stocks, or real estate, or bonds, or commodities…

I’m going to guess that you have a relatively small amount of money to invest, say $10,000, that you would be upset if you lost more than, say, $2,000 in a given year, but that you’re not going to need to get at the money quickly. If these sound roughly like your circumstances, I’d suggest putting $4,000 in an FDIC-insured 1-year CD and using the remaining $6,000 to buy a mutual fund or ETF that tracks the S&P 500 index. (Be careful when picking mutual funds — look at the percentage fees they take out to manage the funds, and any brokerage charges you pay to buy them. These can seriously eat into your profits and deepen your losses.)

For most investments — anything riskier than a bank account — you are going to have to work with a brokerage firm, and your transactions will be handled by someone who, by law, is licensed to advise you about various aspects of investing. Talk to your stockbroker and don’t be afraid to ask him lots of questions if you don’t understand something. (But don’t think of him as your friend — he works for his employer, not you, and sometimes your incentives don’t match. Don’t make any decisions that you don’t fully understand just because he said they’d be a good idea.)

If you earned the money you’re investing (as opposed to e.g. Receiving it as a present), and you want to invest for college or for your retirement, there are special types of accounts you can use for those purposes which give you a break on taxes. Taxes are an important consideration — if you make a 7% return and pay 33% in taxes, you’re really making less than 5%. At 7%, your money doubles in 10 years. At 5%, it takes 15 years. Perhaps these numbers don’t sound so big, so make sure to stop and think about how long 5 years is.

Ken asks…

How exactly to make money in the stock market?

Someone explain to me how exactly you make money in the stock market…how do you speculate and everything?

John answers:

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