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Discuss the risk and return characteristics of a portfolio in terms of correlation and diversification, and the impact of international assets on a portfolio.
Time Value of Money
Discuss the management of receipts and disbursements, including floats, speeding collections, slowing payments, cash concentration, zero-balance accounts, and investing in marketable securities.
Discuss the return and risk of alternative capital structures, their linkage to market value, and other important considerations related to capital structure.
The degree and direction of correlation between return have far reaching effects on the reduction of portfolio through diversification. The value of correlation takes value or varies between the positive and negative entity. Positive correlation between returns pays a direct relationship between risk and return of portfolio and on the other side, when assets with negative correlated between their returns are combined in different ratios, the relationship between the risks and return characteristic of a portfolio shapes a 'V' image. The more negative and less positive is the correlation between asset returns the greater risk reducing benefits of diversification. If the investor invests its wealth in more than one security reduces portfolio risk. This is attributed to diversification effects. The international assets have positive impact on assets because it increases the international assets on portfolio that ultimately reduce the risk and offer higher return (Van Horne, Wachowicz, & Bhaduri, 2008).
Time value of Money
Future Value: Future value of money refers to a particular amount of money to be matured in future by calculating on the basis of a specified interest rate (Van Horne, Wachowicz, & Bhaduri, 2008).
FV = PV(1+k)^n
For calculating the future value of single cash low compounded ...
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