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    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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    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 ...

    Solution Summary

    The cost of capital and risk of overseas investments.