Your brother-in-law wants to buy either stock or bonds in Cedar Valley Furniture, which manufactures wooden furniture. He wants your advice on whether to buy stock or bonds. Explain how each of his quotes below should affect his choice between the stock and the bond
a. "I have reason to believe that people are soon going to find rocking chairs have health benefits."
b. "I would like to tell people I am part owner of Cedar Valley Furniture."
c. "I do not want to take on much risk."
a. Presumably, when this happens, unless everyone else has anticipated it, dividends, the price of the stock, or both will increase. The interest rate on bonds will not change as profits increase, so this quote suggests buying stock would better suit your brother-in law's purposes.
b. Bondholders are simply creditors, while stockholders are part owners. So this quote indicates your brother-in-law would prefer to buy stock.
c. In case of financial difficulties stockholders get paid after bondholders, so the stock is somewhat more risky. So, your brother-in-law may prefer the bond.
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