Question

Do you agree with the following statement?

The sector or name concentration pays off in equities but not in credit. Give reasons for your answer .    ( 7) marks

Answer 1

The amount of higher profit due to investment concentration in 1 investment asset or specific type of investment asset , is very common in equity investment . As the high level of investment concentration in a growing sector or a big company always pay higher return due the high percentage of sharing in profit. The return in equity is not fixed ,

But the high investment concentration in credit or debt has no impact on return , as the return would be fixed and no change due high amount of share . The return from credit market remain fixed and constant , change as per level of risk not with the name of company.