Cost of capital for overseas investments
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Suppose that your shareholders own only U.S. stocks. Would you expect an overseas investment to have above- or below-average risk for them? Would your answer change if they held an internationally diversified portfolio? What implications does your answer have for the cost of capital for overseas investments?
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Solution Summary
The cost of capital and risk of overseas investments.
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Risk is related to an investor's diversification. Diversification reduces risk by allocating investments among different financial instruments. Therefore an overseas investment carries below average risk for shareholders that ...
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