I have a query, pls reply. If there is a company A with an expected return of 22.5% and ex-ante return of 10% and there is another company B with expected return of 24% and an ex-ante earning of 8%. Which of the two companies should one invest in and Why ? Thanks, Samit
I don’t understand your question. it seems like ex-ante return is the expected return.
And whatever is meant here the answer is that B is more leveraged than A and which you should invest in depends on how you feel about risk.
Pls read expected return as required return Ex-ante retune = Expected return less required return
wierd terminology. In Corporate Finance terms, there are two projects A with required return of 22.5% (that relfects risk of the project) and IRR of 10% B with required return of 24% and IRR of 8% According to IRR rule, A would be a better stand alone investment. -> done with Corp Finance part investment aspects: However, it’s important to consider investment objectives such as risk and return. If you already have some investments, it would be helpful to look at potential investments A and B in the context of the portfolio investment objectives and its composition.
With just completing the quant session…i agree with the IRR rule methodology…A would apply. What’s the final answer jain_samit?