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Discuss two key factors that might make investment either risky or undervalued. These might be factors...

Discuss two key factors that might make investment either risky or undervalued. These might be factors that are not yet reflected in either stock’s price.

What kind of adjustments should be made when computing expected returns?

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Answer #1

1. Two factors which are making the investment risky would be investment on leverage because that will be carrying a rate of interest which is to be repayed and investment much generate rate of return in order to pay the interest.

another factor which make the investment risky is change in the monetary policy of the country because that would be impact in the overall investment through change in inflation and expected interest rate and the company prices change.

2.adjustment should be made when computing expected returns would be the risk tolerance of the investor along with the systematic risk and the market premium with the investor is wanting to pay as well as the ability of investor to take excess risk on risk free rate.

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