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- 1. True or false. to apply the rate of return analysis correctly, we need to classify an investment i as either simple or non-simpleIf the internal rate of return (IRR) of a well-behaved investment alternative is equal to MARR, which of the following statements about the other measures of worth for this alternative must be true? i. PW = 0 ii. AW = 0. Solve, a. I onlyb. II only c. Neither I nor II d. Both I and II.7.For a lending investment project, which of the following is a bad decision rule? If IRR is less than cost of capital: reject If IRR is greater than cost of capital: accept If profitability index is less than O: accept If profitability index is greater than O:accept
- 1. Define the components of holding period return. Can any of these components be negative? 2. How do you understand an investment risk and what statistic tools can be used to measure it?Facing the question of whether to buy and hold an asset or whether to buy one asset rather than another, which of the following factors must be considered by an individual investor? A Investor's wealth. B Expected return on one asset relative to alternative assets. C Risk of one asset relative to alternative assets. D All of the above must be considered. Which of the following is correct about the expected return on a particular asset? Question 6 options: A If the asset's beta is 1.0, then the expected return on that asset is equal to the risk-free rate of return. B If the asset's beta is zero, then the expected return on that asset is greater than the risk-free rate of return. C If the asset's beta is zero, then the expected return on that asset is equal to the risk-free rate of return. D If the asset's beta is greater than 1.0, then the…Calculating the payback time is the most precise technique to determine the profitability of an investment. True B. Incorrect
- Suppose that the price of an asset equals its fundamentalvalue. What behavioral features might then ensure that investors continue totrade? Answer this question specifically in the context of the models that havebeen taught in your course.which one is correct please confirm? Q2" Which of the following strategies will be profitable if the price of the underlying asset is expected to decrease? (There may be more than one correct response.) Buying a put Buying a call. Selling a put Selling a call.Is the following statement true or false. Briefly explain your answer. “There can not be a universally risk-free asset for all investors.” [Hint: Think about investor’s investment horizon vs. the asset’s time to maturity, inflation, etc.]
- 6. "Accept investments that have positive net present values" is called the net present value rule. True or False?Which of the following statements describing the elements of intrinsic valuation is most accurate? a. A simple calculation of present values of expected cashflows of different investments using the risk free rate would be enough to determine which asset is best. b. The risk-free rate is the lowest rate that an investor can earn from short-term investments.c. When the present value of the cashflows is discounted with the appropriate rate end this present value is positive, then the asset providing these cashflows have a value to the investor. d.Cashflows may include depreciatipon expenses and amortization costs.Explain what is meant by the internal rate of return of an investment and discuss its relationship to the NPV of an investment. Explain the problems posed for the use of the IRR when it is necessary (i) to choose between two investments and when (ii) investments are characterised by negative net cash flows at the end of their lives. Discuss and evaluate the use of the payback period as an investment criterion.
