Investment theory is an important aspect in understanding when a company or a person should invest. Companies use investment theory to understand when to invest in manufacturing and when to resist the temptation for more investment. Manuals as investment theories homework answers can be of real help in this regard.
Investment theory is important from the stock broker point of view as they would like to know when to exit the market safely or when to enter the market safely to reap rich dividends.
The various theories of investment that are used in manufacturing are as follows
The accelerator theory of investment
The output rate of a firm can increase, and this increase would require an increase in the capital stock rate. This is the main concept of accelerator theory of investment. The base concept should be understood well before writing by the student in investment theories homework answers.
The lag in investment theory
The capital stock adjusts model investment theory takes into account the lags that can occur with the level of an output of capital. The example is that if the company has fresh demand for a stock, the company will exhaust inventories before exhausting capital stock. If the demand is still there even after exhausting inventories, then a decision is taken for increasing capital stock, and this administrative lag is taken into consideration by the theory.
The capital is one thing that may not be easily available in the market and the delay in raising it would cause delay and would lead to lag.
The profits theory of investment
Investment is dependent on the profit that a firm has gained, and profit in future is dependent on investment that needs to be done. Investment decision takes place based on the previous data of profit. Total profit and total earnings can increase, and that leads to less dependency on capital as revenue earnings increase.
Dussenberry theory of investment
In this investment theory when capital stock grows, a gross investment would grow, and depreciation would come down, and when income grows, investment will exceed savings.
There are investment theories that have been used in stock market like
Loss aversion theory
This theory states that people are afraid of a loss of choice of profit are there. The theory states that people would go for investment that gives them less loss and carries less risk rather than investing in a stock that gives them high yield but carrying a risk tag. There are cases when net annual return rate is ignored by having a basic belief like this. A student covering in investment theories homework answers should understand the difference.
Rational expectations stock market theory
Many people would invest in a stock believing rationally that this is what is going to happen in the future. These types of people believe that once they invest in falling stock company, people would start investing in these companies and the stock would rise to exact market price and the investor can sell stock and gain profit.
Short interest theory in stock market
Many investors would be driving the market price of stock as they have shorted and that would mean that the share value of the stock would increase and can result in sudden profit.
Greater fool theory in stock market
This theory is an assumption that a person can start or keep investing in a company provided he or she believes that there is a bigger fool to buy or keep on investing. This is a highly risky decision as the time tested formula of looking after the earnings, valuations and other data is ignored, and the stock holder can land in a loss when market correction takes place.
Odd lot sales by small holders
The major investors would buy a share as an odd lot when small shareholders exit the market, and the assumption is that small share holders would not know much about the market. This basic assumption is wrong as there is no guarantee that small investors do not understand the company financial position and other data related to sharing market.
The high fifty percent principle in stock market
Investors always have thought that there would be a stock correction before settling down and the correction is fifty percent. For example, if a share price has increased by thirty percent there is a belief that says that share piece would fall to 15% before rising again and that is a better time to sell the share. This assumption is based on mind rather than on any solid proof and can backtrack.
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