Why might it be easier for an investor desiring to diversify his portfolio internationally to buy...

Why might it be easier for an investor desiring to diversify his portfolio internationally to buy depository receipts rather than the actual shares of the company?

Solutions

Expert Solution

It is easier for the investor desiring to diversify his portfolio investment to buy the depository receipts rather than actual shares of the company because depository receipts are less volatile and they are also exposed to the lower risk and it will also provide the investor with the secured rate of return and higher stability because these are not that tradable in the market where as the stocks are continuously traded and there is a risk related to the the erosion of the value of the investment of the shareholder and there is no guarantee of the payment in form of dividend from the company to the shareholder.

Shares of the company are continuously reflecting the mood of various market participants and it is also reflecting the performance of the company and which is getting discounted regularly so stock investment is not passive in nature and it is continuously changing so it will have a risk related to volatility and uncertainty whereas depository receipt are safer investment and they will be not be fluctuating and they will also provide the investor with the security of receiving the payments in form of principal at the maturity.

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

List the different instruments through which a domestic investor can diversify its portfolio internationally.

Explain (in a page or more - using own words) why it is easier to diversify...

Explain (in a page or more - using own words) why it is easier to diversify in an efficient market, utilizing skills such as Asset Allocation and Correlation? Explain why the Weak form is the most efficient of the three forms of market efficiency.

Why is the correlation coefficient an important statistical measure for investors when they diversify their portfolio?...

Why is the correlation coefficient an important statistical measure for investors when they diversify their portfolio? Use an example to explain your answer. (b) In their “Pro’s Guide to Diversification”, the US investment firm Fidelity state that “to build a diversified portfolio, you should look for assets—stocks, bonds, cash, or others—whose returns haven’t historically moved in the same direction, and to the same degree, and, ideally, assets whose returns typically move in opposite directions.” Explain the concept of diversification. Critically...

An investor has two bonds in his portfolio that have a facevalue of $1,000 and...

An investor has two bonds in his portfolio that have a face value of $1,000 and pay an 11% annual coupon. Bond L matures in 15 years, while Bond S matures in 1 year.A. What will the value of the Bond L be if the going interest rate is 7%, 8%, and 12%? Assume that only one more interest payment is to be made on Bond S at its maturity and that 15 more payments are to be made on...

An investor has two bonds in his portfolio that have a face value of $1,000 and...

An investor has two bonds in his portfolio that have a face value of $1,000 and pay a 12% annual coupon. Bond L matures in 18 years, while Bond S matures in 1 year. Assume that only one more interest payment is to be made on Bond S at its maturity and that 18 more payments are to be made on Bond L. What will the value of the Bond L be if the going interest rate is 5%? Round...

If an investor diversifies his portfolio, appropriate measure of risk for any one security in the...

If an investor diversifies his portfolio, appropriate measure of risk for any one security in the portfolio is this. A. standard deviation B. Beta C. Sharpe ratio D. coefficient of variation

An investor has two bonds in his portfolio that have a face value of $1,000 and...

An investor has two bonds in his portfolio that have a face value of $1,000 and pay an 8% annual coupon. Bond L matures in 14 years, while Bond S matures in 1 year. What will the value of the Bond L be if the going interest rate is 5%, 6%, and 9%? Assume that only one more interest payment is to be made on Bond S at its maturity and that 14 more payments are to be made on...

An investor has two bonds in his portfolio that have a face value of $1,000 and...

An investor has two bonds in his portfolio that have a face value of $1,000 and pay an 11% annual coupon. Bond L matures in 11 years, while Bond S matures in 1 year. Assume that only one more interest payment is to be made on Bond S at its maturity and that 11 more payments are to be made on Bond L. What will the value of the Bond L be if the going interest rate is 5%? Round...

An investor has two bonds in his portfolio that have a face value of $1,000 and...

An investor has two bonds in his portfolio that have a face value of $1,000 and pay a 6% annual coupon. Bond L matures in 16 years, while Bond S matures in 1 year. Assume that only one more interest payment is to be made on Bond S at its maturity and that 16 more payments are to be made on Bond L. a. What will the value of the Bond L be if the going interest rate is 6%?...

An investor has decided to form a portfolio by putting 25% of his money into McDonald’s...

An investor has decided to form a portfolio by putting 25% of his money into McDonald’s stock and 75% into Cisco Systems stock. The investor assumes that the expected returns will be 8% and 15%, respectively, and that the standard deviations will be 12% and 22%, respectively. a. Find the expected return on the portfolio. b. Compute the standard deviation of the returns on the portfolio assuming that (i) the two stocks’ returns are perfectly positively correlated (ii) the coefficient...

Subjects