Answer to Question #251030 in Finance for Loui

Question

Question four.
A. Why might the economy take a long time to achieve PPP? (10 marks)
B. Discuss some reasons why an investor with a long time horizon might choose to invest in common stocks, even though they have historically been riskier than government bonds or T-bills. (10 marks)

Answer 1

1.Lack of comprehensive policy, legal and institutional frameworks that provide clear guidelines and procedures for development and implementation of PPPs.

2.Lack of realistic and comprehensive technical, socio-economic and commercial feasibility analysis which leads to poor project design.

3.Inadequate enabling environment which includes lack of long-term financing instruments and appropriate risk sharing mechanisms.

4.Insufficient capacity negotiations, procurement, implementation and management of PPPs.

Part 2;

Common stocks can be expected to provide for the best growth in purchasing power based on historical data. An investor with a long time horizon can tolerate fluctuations in stock returns because of the long-term upward trend in stock returns. How much common stock an investor is willing to hold and what types of stocks he chooses for his portfolio will depend on his level of risk aversion.