Risk, TVM, and Portfolio Diversification

Questions/Business/ManagementRisk, TVM, and Portfolio Diversification
1.Why are investors risk-averse? How can these investors measure the level of risk in an investment and how much compensation is justified for added risk? 2.Why is the time value of money an important consideration when evaluating an investment opportunity? Explain your response and use examples. 3.What is a diversified portfolio? Why is it necessary that a portfolio be diversified? How could an investor diversify her/his portfolio?

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Prof_Expert4_UA 98 TUTOR Posted 180. Sold 177. Solution preview:
Risk,_TVM, & Portfolio_Diversification Q* Risk-averse investors Many investo** ****** risk-averse ***** ****** ****** ******** ** **** **** ***** ****** alternatives, **** investors ****** ****** ****** *** ***** **** investors ****** *** *** **** ****** **** ** *** **** ****** ******* *** ******* ** *** ***** ***** ***** investors *** ****** *** **** ***** ***** ****** alternatives ******* **** **** ****** ******* ******** **** ******* *** *** **** ** ****** **** ****** investing ** nonvolatile ***** ****** ****** ** *** ***** ***** investors *** *** ******* **** *** ******** ***** ****** ***** ******** **** ****** **** *** ****** ******** ***** ****** financial instruments (Brealey, ***** Investors’ **** ***** merements Investors *** *** **** ***** merements *** ***** **** ******** ******* ***** **** ** ******** ** *** ****** ** ******* ** prescribed benchmarks *** **** **** ******** ******* ******* ** determine ** *** investment ** ******** ** *** ******** *** ****** *** ******** deviation ******** *** investment *** similarly ****** *** volatility *** ** **** ******** ******* ******* ** ascertaining *** ******** financial instruments’ percentage ** ******** ** *** benchmarked ***** ******** ** standards (Brealey, ***** Compensation *** ***** investment ***** Compensation ** justified *** *** ***** investment ***** ****** investments ***** generated ****** ******* Investing ** **** ******** ***** ****** financial ****** **** ******** ****** ******* ******** ****** *** characterized ** ******** ******* ** *** ***** ****** ****** *** ***** ****** ****** ** nonvolatile ****** ******** ** *** fluctuate ***** *** ****** *** generated ** deducting *** difference ******* ***** ****** ****** (Brealey, ***** * * Time_value ******** *** time_value ** ***** importantly ***** **** ****** investment opportunity evaluation ***** ** ******** ** ******* *** ******** ******** *** ***** ***** *** ******** * *** ******** ***** ** ** ******* ******** **** ****** ** * *** ***** *** **** ** *** **** ******* receiving **** ***** *** **** ** ** ******* ******** ******** **** *** ******* (today’s **** ******** ***** ** *** ****** ** **** **** ** today’s **** ****** (Brealey, ***** ** Diversified Portfolio ** ***** ** *** ** diversify, *** diversified portfolio ** * *** ** different investments ***** ** *** investment ****** *** ******** *** ******** *** ****** ** ** ****** McDonald’s ******* ** ****** ** ******** ******* *** ** ****** ** ******** Fried_Chicken ***** ****** ****** *** portfolio necessarily ******* investment ***** *** ******** *** ***** ****** ***** ** McDonald’s ****** generated * ** ******* ******* *** ******* investment **** ** ******* **** *** ***** ****** ***** ** ******** Fried_Chicken ******** * * ******* ******** *** unfavorable ** ******* McDonald’s ***** ****** ***** **** ** ******* ** *** * ******* Kentucky_Fried ******* ***** ****** ***** ******** (Brealey, ***** Reference ******** * ****** Principles ** ******** ******** *** **** ****** **** *****

Attachments
Investor3.doc
Q* Risk-averse investors
Many investors prefer risk-averse stock market panies C******* ** **** **** ***** ****** alternatives, **** investors ****** ****** ****** *** ***** **** investors ****** *** *** **** ****** **** ** *** **** ****** ******* *** ******* ** *** ***** ***** ***** investors *** ****** *** **** ***** ***** ****** alternatives ******* **** **** ****** ******* ******** **** ******* *** *** **** ** ****** **** ****** investing ** nonvolatile ***** ****** ****** ** *** ***** ***** investors *** *** ******* **** *** ******** ***** ****** ***** ******** **** ****** **** *** ****** ******** ***** ****** financial instruments (Brealey, *****
Investors’ **** ***** merements
Investors *** *** **** ***** merements *** ***** **** ******** ******* ***** **** ** ******** ** *** ****** ** ******* ** prescribed benchmarks *** **** **** ******** ******* ******* ** determine ** *** investment ** ******** ** *** ******** *** ****** *** ******** deviation ******** *** investment *** similarly ****** *** volatility *** ** **** ******** ******* ******* ** ascertaining *** ******** financial instruments’ percentage ** ******** ** *** benchmarked ***** ******** ** standards (Brealey, *****
Compensation *** ***** investment *****
Compensation ** justified *** *** ***** investment ***** ****** investments ***** generated ****** ******* Investing ** **** ******** ***** ****** financial ****** **** ******** ****** ******* ******** ****** *** characterized ** ******** ******* ** *** ***** ****** ****** *** ***** ****** ****** ** nonvolatile ****** ******** ** *** fluctuate ***** *** ****** *** generated ** deducting *** difference ******* ***** ****** ****** (Brealey, *****
* * Time_value ********
*** time_value ** ***** importantly ***** **** ****** investment opportunity evaluation ***** ** ******** ** ******* *** ******** ******** *** ***** ***** *** ******** * *** ******** ***** ** ** ******* ******** **** ****** ** * *** ***** *** **** ** *** **** ******* receiving **** ***** *** **** ** ** ******* ******** ******** **** *** ******* (today’s **** ******** ***** ** *** ****** ** **** **** ** today’s **** ****** (Brealey, *****
** Diversified Portfolio
** ***** ** *** ** diversify, *** diversified portfolio ** * *** ** different investments ***** ** *** investment ****** *** ******** *** ******** *** ****** ** ** ****** McDonald’s ******* ** ****** ** ******** ******* *** ** ****** ** ******** Fried_Chicken ***** ****** ****** *** portfolio necessarily ******* investment ***** *** ******** *** ***** ****** ***** ** McDonald’s ****** generated * ** ******* ******* *** ******* investment **** ** ******* **** *** ***** ****** ***** ** ******** Fried_Chicken ******** * * ******* ******** *** unfavorable ** ******* McDonald’s ***** ****** ***** **** ** ******* ** *** * ******* Kentucky_Fried ******* ***** ****** ***** ******** (Brealey, *****
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