2) As an investor when you invest in a stock, what will be your risk-return profile? Why an investor chooses stocks over bond investments?

The answer to the above question is highly subjective as the risk-taking capacity differs from person to person. However, an ideal answer would be as follow:

The risk-return tradeoff is the relationship between the return gained on an investment and the amount of risk undertaken in that investment. The risk-return tradeoff states that the potential return rises with an increase in risk i.e. ideally, the more risk sought, the higher is the risk to be borne by the investor. A risky investor would be ready to undertake higher risk in order to gain a higher return. In contrast, a risk-averse investor would naturally take a low risk and would seek a very high risk premium in order to undertake any additional risk.

Me being a moderately risky investor, I lie somewhere in the middle of the two explained above. Being a long-term investor in equities gives me the bandwidth to bear the brunt of bear market conditions to ultimately turn out as profitable over the long run. So I am willing to extra risk for earning an extra return. However, my risk-taking capacity is not very high as when the investment starts doing extremely bad I prefer selling it wait for other opportunities.

Reasons for choosing stocks over bond-investment:

1. The biggest advantage is the ability of stocks to generate higher returns than bonds on an average, over a long duration.
2. The investors whose risk appetite is large are better off investing in stocks than bonds.
3. Investment in dividend-paying stocks also gives regular income.
4. Strategic Equity Investment can be made in stocks of particular sectors so as to benefit from that sector's growth story.
5. Equity investments also give a good hedge against inflation.