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You are a member of the investment committee of your company. In a monthly meeting, a proposal was presented. The company has RM150 million in
You are a member of the investment committee of your company. In a monthly meeting, a proposal was presented. The company has RM150 million in cash which it has no immediate plans for or use of. The company would like to invest this RM150 million in public listed companies, to earn investment return. A team of analysts has identified 15 companies to be considered for this investment. Based on the analysts' research, these 15 companies all have similar risk. It has been proposed that your company invests RM10 million in each of these 15 companies. During this meeting, someone remarked: "I was just looking at the numbers. Although all the 15 companies' risk are about the same, the expected return for one of the companies - Cepat Kaya Berhad (CKB) is slightly higher than the other 14 companies. So I propose that we invest exclusively in CKB, that is, put all RM150 million in CKB. That way, we can maximize shareholder returns. After all, isn't that our duty, to maximize shareholder value?" Comment on this remark. [5 marks] You are a member of the investment committee of your company. In a monthly meeting, a proposal was presented. The company has RM150 million in cash which it has no immediate plans for or use of. The company would like to invest this RM150 million in public listed companies, to earn investment return. A team of analysts has identified 15 companies to be considered for this investment. Based on the analysts' research, these 15 companies all have similar risk. It has been proposed that your company invests RM10 million in each of these 15 companies. During this meeting, someone remarked: "I was just looking at the numbers. Although all the 15 companies' risk are about the same, the expected return for one of the companies - Cepat Kaya Berhad (CKB) is slightly higher than the other 14 companies. So I propose that we invest exclusively in CKB, that is, put all RM150 million in CKB. That way, we can maximize shareholder returns. After all, isn't that our duty, to maximize shareholder value?" Comment on this remark. [5 marks]
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