A manager in an investment center is offered a potential investment that would have an ROA of 15 percent.After the investment,it would make up 20 percent of his total portfolio.Currently,he makes 20 percent on his portfolio,though the company requires only 12 percent.Which of the following is true?
A)He will make the investment since it is 3 percent greater than the company's required return.
B)He will make the investment because a larger portfolio is always better than a smaller portfolio.
C)He will not make the investment because the company prefers 12 percent.
D)He will not make the investment because it lowers his overall return to 19 percent.

Question

Quizplus · Accepted Answer

The investment has a lower ROA (15%) than the current portfolio's ROA (20%). Adding it would dilute the overall return, reducing it to below the current 20%, even though it's above the company's required 12%.

A Manager in an Investment Center Is Offered a Potential