International Financial Management 6th Edition by Sanjiv Eun, Cheol Resnick, Bruce Sabherwal

Exercise 17

Suppose you are a financial adviser and your client, who is currently investing only in the U.S. stock market, is considering diversifying into the U.K. stock market. At the moment, there are neither particular barriers nor restrictions on investing in the U.K. stock market. Your client would like to know what kinds of benefits can be expected from doing so. Using the data provided in problem 6, solve the following problems:
What is the extra return that U.S. investors can expect to capture at the U.S.- equivalent risk level Also trace out the efficient set. Appendix 15.B provides an example.