Focus only on the diversification argument

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1) Using the Pecking Order Theory of capital structure, list the various forms of financing from most to least preferred?

2) You are a risk-averse investor. Your financial advisor has told you that in order to lessen your portfolio risk you should not invest in gold mining stocks, because they have high return standard deviations. Does this advice make sense (why or why not)?

3) Corporations used to form conglomerates (composite companies formed through the acquisition of smaller companies in often vastly different businesses). Their justification was often that conglomerates offered investors diversification. Use an argument similar to the M&M arbitrage, which lead to M&M proposition I (no taxes), that the value of a conglomerate should be the sum of the values of the individual companies. Ignore any ‘synergies' in the conglomerate, and focus only on the diversification argument?

Reference no: EM131559841

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