Suppose the expected return on your current portfolio is 7%. The risk-free rate available to you is 4%. You are considering adding an impact investment to your portfolio which you expect would have a measurable beneficial impact on a community which you care about. The weight of the impact investment in your portfolio would be approximately 0.01%. You expect that the financial return on the impact investment and the beneficial non-financial impact would be uncorrelated to the return on the rest of your portfolio. What would be the appropriate threshold rate of return above which you should invest in the impact investment? Support your case for your choice of threshold with an argument from one or more of the class readings.
Suppose the expected return on your current portfolio is 7%. The risk-free rate available to you is 4%. You are considering adding an impact investment to your portfolio which you expect would have a measurable beneficial impact on a community which you care about. The weight of the impact investment in your portfolio would be approximately 0.01%. You expect that the financial return on the impact investment and the beneficial non-financial impact would be uncorrelated to the return on the rest of your portfolio. What would be the appropriate threshold rate of return above which you should invest in the impact investment? Support your case for your choice of threshold with an argument from one or more of the class readings.
Essentials of Business Analytics (MindTap Course List)
2nd Edition
ISBN:9781305627734
Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Chapter15: Decision Analysis
Section: Chapter Questions
Problem 25P: Consider a decision maker who is comfortable with an investment decision that has a 50% chance of...
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Suppose the expected return on your current portfolio is 7%. The risk-free rate available to you is 4%. You are considering adding an impact investment to your portfolio which you expect would have a measurable beneficial impact on a community which you care about. The weight of the impact investment in your portfolio would be approximately 0.01%. You expect that the financial return on the impact investment and the beneficial non-financial impact would be uncorrelated to the return on the rest of your portfolio.
- What would be the appropriate threshold
rate of return above which you should invest in the impact investment? - Support your case for your choice of threshold with an argument from one or more of the class readings.
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