Given that shares are riskier than bonds, why do investors invest ...

[Lobcity]

Given that shares are riskier than bonds, why do investors invest in equity?
 
  What will be an ideal response?

Question 2

Refer to Figure 18-3. Consider the market for U.S. dollars against the Japanese yen shown above. An event which could have caused the changes shown in the graph would be
 
  A) an increase in U.S. real income.
  B) an economic expansion in the United States.
  C) speculators expect the dollar to depreciate in value in the near future.
  D) a decrease in Japanese interest rates.

[juwms]

Answer to Question 1

Equity investors are rewarded for taking on higher risk with an average rate of return that is greater than the average rate of return on bonds. Although equity returns fluctuate from year to year, investors who are willing to bear the additional risk of investing in shares also benefit from a higher average return.
A-head: INVESTMENT RETURNS
Concept: Risk

Answer to Question 2

D