A firm attempts to find the particular combination of securities that maximizes the overall market value...

A firm attempts to find the particular combination of securities that maximizes the overall market value of the firm. Please discuss the following questions in regards to the many different securities in countless combinations:

1. Are such attempts worthwhile?

2. Do you consider the possibility that no combination has any greater appeal than any other?

3. Do you re-evaluate company's assets and structure. If so, which is a priority. Please justify your answer.

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Expert Solution

1) Investment in different securities allows the firm to have diversified portfolio. It depends on the risk bearing capacity of the firm. With the analysis of the different securities as compared to the market trend and its peers in the same industry, a firm can identify different combination of securities as its protfolio which can result in maximization of its value. However it depends on the risk bearing capacity of the firm.

2) The statement that no combination has any greater appeal than any other cannot be true as every different combination generates diiferent value however with different risks involved. In a particular comination of securities there always exists a similar combination with same value involved for the investor with different risk. Selection is to be made of the combination of securities which gives high value with low risk.

3) For the purpose of investments the priority is to be given to the assets of the company.as the net worth is determined by its assets value. The company which has valuable assets is a wothwhile investment.

jeff jeffy answered 2 years ago

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