Which TWO of the following statements are correct for a potential project with an investment followed by a series of positive operating cashflows? A The graph of NPV against discount rate has a negative slope B if the NPV at 10% is positive, the IRR will be below 10% C The IRR can be calculated exactly using linear interpolation D An estimate of the IRR requires the calculation of the NPV at 2 different rates

Which TWO of the following statements are correct for a potential project with an investment followed by a series of positive operating cashflows? A The graph of NPV against discount rate has a negative slope B if the NPV at 10% is positive, the IRR will be below 10% C The IRR can be calculated exactly using linear interpolation D An estimate of the IRR requires the calculation of the NPV at 2 different rates

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter16: Country Risk Analysis

Section: Chapter Questions

Problem 20QA

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Assume that the risk-free rate, RF, is currently 8%, the market return, RM, is 12%, and asset A has a beta, of 1.10. (could be done on word document or excel). Assume that as a result of recent economic events, inflationary expectations have declined by 3%, lowering RF and RM to 5% and 9%, respectively. Draw the new SML on the axes in part a, and calculate and show the new required return for asset A. Assume that as a result of recent events, investors have become more risk averse, causing the market return to rise by 2%, to be14%. Ignoring the shift in part c, draw the new SML on the same set of axes that you used before, and calculate and show the new required return for asset A. From the previous changes, what conclusions can be drawn about the impact of (1) decreased inflationary expectations and (2) increased risk aversion on the required returns of risky assets?
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