While waiting for a plane, you met Miguel, a recent college graduate who once he heard that you knew something about investing, immediately began asking you questions about bonds. Miguel indicated that according to his friends, the stock market was too volatile and that bonds were a safer place to invest. Miguel admitted that he really didn't know much about either stocks or bonds but that he hoped to start saving so that he could purchase a house in the next five years. Miguel also mentioned that he had heard about preferred stock and real estate as alternatives to bonds. His roommate recommended that he buy a preferred stock that paid a $4.50 annual dividend or purchase farmland outside of his hometown. Answer the following questions in a way that will help Miguel learn about investment concepts. If Miguel thought that interest rates were going to increase, what type and maturity of bond should he purchase? What type and maturity should he avoid? Why? Explain why Miguel might want to consider investing in preferred stock rather than bonds. If Miguel really wanted to purchase real estate to meet his objective, would a direct or indirect real estate investment be more appropriate for him? Explain your answer in terms of liquidity, volatility, and safety. While waiting for a plane, you met Miguel, a recent college graduate who once he heard that you knew something about investing, immediately began asking you questions about bonds. Miguel indicated that according to his friends, the stock market was too volatile and that bonds were a safer place to invest. Miguel admitted that he really didn't know much about either stocks or bonds but that he hoped to start saving so that he could purchase a house in the next five years. Miguel also mentioned that he had heard about preferred stock and real estate as alternatives to bonds. His roommate recommended that he buy a preferred stock that paid a $4.50 annual dividend or purchase farmland outside of his hometown. Answer the following questions in a way that will help Miguel learn about investment concepts. If Miguel thought that interest rates were going to increase, what type and maturity of bond should he purchase? What type and maturity should he avoid? Why? Explain why Miguel might want to consider investing in preferred stock rather than bonds. If Miguel really wanted to purchase real estate to meet his objective, would a direct or indirect real estate investment be more appropriate for him? Explain your answer in terms of liquidity, volatility, and safety
