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Author Question: Akai has a portfolio of three assets. Find the expected rate of return for the portfolio assuming he ... (Read 133 times)

Yi-Chen

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on: Jul 10, 2018
Akai has a portfolio of three assets. Find the expected rate of return for the portfolio assuming he invests 50 percent of its money in asset A with 10 percent rate of return, 30 percent in asset B with a rate of return of 20 percent, and the rest in
 
  asset C with 30 percent rate of return.

Question 2

What potential biases exist in project selection if Nico Manufacturing did not adjust for the difference in risk between Projects X and Y (See Table 11.10).
 
  What will be an ideal response?


jaygar71

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Reply #1 on: Jul 10, 2018
Answer to Question 1

Expected rate of return = 17 percent.

Answer to Question 2

The danger of not accounting for differences in project risk is that the firm may potentially chose unacceptable high-risk projects (with negative NPVs) over potentially acceptable low-risk projects (with positive NPVs).


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