Why is the risk-based approach the best method for estimating stocks expected return?
Answer to relevant QuestionsHow can the weight given to a particular stock in a portfolio exceed 100 percent? Kevin Federline recently inherited $1 million and has decided to invest it. His portfolio consists of the following positions in several stocks. Calculate the portfolio weights to fill in the bottom row of the table. Describe how the IRR and NPV approaches are related. Can you articulate circumstances under which the cost of excess capacity is zero? Think about why the cost of excess capacity normally is not zero. Use the language of real options to explain why riskier firms must pay higher interest rates when they borrow money.
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