Corporate Finance
Corporate Finance
3rd Edition
ISBN: 9780132992473
Author: Jonathan Berk, Peter DeMarzo
Publisher: Prentice Hall
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Chapter 24.1, Problem 2CC
Summary Introduction

To discuss: The four categories of international bonds.

Introduction: International bonds are debt instruments, which are issued in a country that are not domestic to the investor or international bond are those debt instruments which are issued by the foreign companies, but sold domestically.

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The common shares of Almond Beach Inc, have a beta of 0.75, offer areturn of 9%, and have an historical standard deviation of return of17%. Alternatively, the common shares of Palm Beach Inc. have a betaof 1.25, offer a return of 10%, and have an historical standarddeviation of return of 13%. Both firms have a marginal tax rate of37%. The risk-free rate of return is 3% and the expected rate ofreturn on the market portfolio is 9½%.1. Which company would a well-diversified investor prefer to investin? Explain why and show all calculations.2. Which company Would an investor who can invest in the shares ofonly one firm prefer to invest in? Explain why.
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