1. Which of following is true about the private investors? a. In a private-to-pu

Question

1. Which of following is true about the private investors?

a. In a private-to-public transaction, market beta has to be scaled up to capture the risk exposure of investors.

b. In a private-to-private transaction, market beta has to be scaled down to capture the higher risk-aversion of the undiversified investor.

c. Undiversified investors require a higher rate of return from the same investment, leading to a lower value of the investment.

d. Undiversified investors view the same investments less risky than more diversified investors.

Explanation / Answer

Undiversified investors require a higher rate of return from the same investment, leading to a lower value of the investment. Diversified investors are mostly public transactions which increases the liquidity and credibility of the publix transactions thus increase the value of the investment.

In a private-to-public transaction, market beta has to be down up as to reduce the risk-aversion of the undiversified investor.

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