Technically, the required return of an investment can be determined by determining the investments risk profile....
Technically, the required return of an investment can be
determined by determining the investments risk profile. However,
many intangible factors influence an investor’s decision to invest.
Discuss the intangible factors that may come into play in the
investment decision process.
Homework Answers
There are various intangible factors which come into play while making investment decisions. An important factor is confidence in the quality of leadership of the company in which investment is considered. Transparency in financial reporting is another intangible factor which impacts investment. Corporate governance and ethical standards are other factors which are relevant. Personal needs such as the need for steady income or the desire to make quick capital gains also impact investment decisions.
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Technically, the required return of an investment can be determined by determining the investments risk profile....
2. How can you diversify your investments to spread the risk of losing return on investment?
2. How can you diversify your investments to spread the risk of losing return on investment?
In the lectures notes and class materials, we have studied the concept of risk and return...
In the lectures notes and class materials, we have studied the concept of risk and return - so we know the fundamentals. To assume additional risk, investors will require the opportunity to receive additional return. Additionally, some investors by nature are more risk averse than others - this is what drives financial markets. Let's assume that you have just inherited an unexpected large sum of $100,000 for which you have no pressing financial demands and which you decided to invest...
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Hello, please 200 words at least, thank you: Q: There are several accepted methods of determining the monetary advantage of one investment opportunity over another: The payback method; zero discount r...
Hello, please 200 words at least, thank you: Q: There are several accepted methods of determining the monetary advantage of one investment opportunity over another: The payback method; zero discount rate; net present value; internal rate of return; modified internal rate of return; etc. Discuss one or more non-monetary factors that may influence a manager's otherwise objective decision in choosing one criterion over another. Also, which method do you consider the best?
M4_A5. Porter Investments needs to develop an investment portfolio from the following list of possible investments...
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Risk-adjusted rates of return using CAPM Centennial Catering, Inc., is considering two mutually exclusive investments. The...
Risk-adjusted rates of return using CAPM Centennial Catering, Inc., is considering two mutually exclusive investments. The company wishes to use a CAPM-type risk- adjusted discount rate (RADR) in its analysis. Centennial's managers believe that the appropriate market rate of return is 12%, and they observe that the current risk-free rate of return is 7%. Cash flows associated with the two projects are shown in the following table. Initial investment (CF) Year (t) Project X Project Y -$70,000 -$78,000 Cash inflows...
CDs are a very safe investment because they are usually insured by the U.S. government. (There...
CDs are a very safe investment because they are usually insured by the U.S. government. (There are some CDs that are not insured so it is important to always check!) Because they are so safe, CDs earn low rates of interest. The amount earned on an investment is often called the return. In general, investments with higher risk also have the potential for higher rates of return. For example, if you invest in a stock, which is like buying a...
A college intern working at Anderson Paints evaluated potential investments using the firm’s average required rate...
A college intern working at Anderson Paints evaluated potential investments using the firm’s average required rate of return (r) as the discount rate in the evaluation process and he produced the following report for you as the capital budgeting manager at Anderson Paints: Project NPV IRR Risk LOM $1,500 12.5% High QUE 0 11.0 Low YUP (800) 10.0 Average DOG (150) 9.5 Low As the capital investment manager you must account for the risks associated with...
An investment company would like to know which stocks to invest in to achieve maximum return....
An investment company would like to know which stocks to invest in to achieve maximum return. At the start of every day of the week (Monday through Friday) they decide how much to invest on that day, for example, X dollars. If in the next day they are able to match the initial investment (the X dollars) with another investment half that amount (X/2 dollars) they can expect a total return on the third day that doubles the initial amount...
Risk-adjusted rates of return using CAPM Centennial Catering, Inc., is considering two mutually exclusive investments. The...
Risk-adjusted rates of return using CAPM Centennial Catering, Inc., is considering two mutually exclusive investments. The company wishes to use a CAPM-type risk-adjusted discount rate (RADR) in its analysis. Centennial's managers believe that the appropriate market rate of return is 12.3%, and they observe that the current risk-free rate of return is 7.4%. Cash flows associated with the two projects are shown in the following table. (Click on the icon located on the top-right corner of the data table below...
2. How can you diversify your investments to spread the risk of losing return on investment?
In the lectures notes and class materials, we have studied the concept of risk and return - so we know the fundamentals. To assume additional risk, investors will require the opportunity to receive additional return. Additionally, some investors by nature are more risk averse than others - this is what drives financial markets. Let's assume that you have just inherited an unexpected large sum of $100,000 for which you have no pressing financial demands and which you decided to invest...
M4_A5. Porter Investments needs to develop an investment portfolio from the following list of possible investments COST ($) INVESTMENTS EXPECTED RETURN ($) A 1,700 15,000 17,000 1,850 8,500 1,400 10,000 1,500 E 13,500 1,750 13,000 1,650 9,000 1,500 H 9,500 1,700 The client can invest up to $100,000. The following conditions should be met: (1) If investment C is chosen, then investment D must also be part of the portfolio, (2) at least four investments should be chosen, (3) of...
Risk-adjusted rates of return using CAPM Centennial Catering, Inc., is considering two mutually exclusive investments. The company wishes to use a CAPM-type risk- adjusted discount rate (RADR) in its analysis. Centennial's managers believe that the appropriate market rate of return is 12%, and they observe that the current risk-free rate of return is 7%. Cash flows associated with the two projects are shown in the following table. Initial investment (CF) Year (t) Project X Project Y -$70,000 -$78,000 Cash inflows...
Risk-adjusted rates of return using CAPM Centennial Catering, Inc., is considering two mutually exclusive investments. The company wishes to use a CAPM-type risk-adjusted discount rate (RADR) in its analysis. Centennial's managers believe that the appropriate market rate of return is 12.3%, and they observe that the current risk-free rate of return is 7.4%. Cash flows associated with the two projects are shown in the following table. (Click on the icon located on the top-right corner of the data table below...
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