Consider the following two statements concerning risk analysis:1. Sensitivity analysis provides clear decision rules concerning acceptance or rejection of aninvestment project.2. The risk-adjusted discount rate adds a risk premium to the expected rate of inflation to deriva discount rate for investment projects.Which one of the following combinations (true/false) relating to the above statements is correct?O a. Statement 1 True Statement 2 FalseO b. none of the answer provided are correctStatement 1 True Statement 2 TrueStatement 2 Falsec.d. Statement 1 FalseO e. Statement 1 FalseStatement 2 True

Risk analysis is referred as the process of analyzing as well as identifying the potential issues,…

Consider the following two statements concerning risk analysis: 1. Sensitivity analysis provides clear decision rules concerning acceptance or rejection of an investment project. 2. The risk-adjusted discount rate adds a risk premium to the expected rate of inflation to deri a discount rate for investment projects. Which one of the following combinations (true/false) relating to the above statements is correct? O a. Statement 1 True Statement 2 False O b. none of the answer provided are correct Statement 2 True O c. Statement 1 True O d. Statement 1 False Statement 1 False Statement 2 False e. Statement 2 True

Consider the following two statements concerning risk analysis: 1. Sensitivity analysis provides clear decision rules concerning acceptance or rejection of an investment project. 2. The risk-adjusted discount rate adds a risk premium to the expected rate of inflation to deri a discount rate for investment projects. Which one of the following combinations (true/false) relating to the above statements is correct? O a. Statement 1 True Statement 2 False O b. none of the answer provided are correct Statement 2 True O c. Statement 1 True O d. Statement 1 False Statement 1 False Statement 2 False e. Statement 2 True

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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In choosing where to invest, return and risk for an investment must be compared. It is not sufficient to choose an investment based only on return without taking risk into consideration. There are two methods or measures that compare return and risk. State these two methods, the formula for each and the criteria used in evaluating alternative investment of each method.
Which of the statements about the Arbitrage Pricing Theory MUST BE TRUE. I. There is only one systematic risk, the market risk. II. The market risk factor must be one of many systematic risk factors. III. Individual assets may have a positive or negative alpha A. I only B. II only C. III only D. None of the above
Which of the following statements is inaccurate under perfect capital markets? A. The NPV of a project determines whether it is worth investing in it B. How much an investor should invest in a particular project does not depend on the investor’s risk preferences C. Whether an investor should invest in a project or not does not depend on the investor’s intertemporal preferences D. Whether a long term project should be undertaken does not depend on whether the investor is patient or impatient
Critically explain each one of the following financial terms:i. Asymmetric informationii. Moral hazardiii. Adverse selectionGive examples in each case to illustrate your answer.
Forecasting risk can be defined as the possibility that _____ will lead to incorrect decisions. a. the inclusion of opportunity costs b. erosion c. errors in projected cash flows d. the exclusion of sunk costs e. net working capital costs
1. Explain briefly on “Relevant Cost & Irrelevant Cost”.2. “What is Financial Leverage”? Explain with appropriate illustration.3. Explain the cocept of “Systematic & Non-Systematic Risk”.4. Why is preference capital considered as a hybrid source of financing?
Systematic risk is diversifiable, so it is an investment's relevant risk. Unsystematic risk is O True False
Pls Briefly explain these four. 1. The process of assessing overall risks can be difficult and balancing resources to mitigate between risks with a high probability of occurrence but lower loss versus a risk with a high loss but lower probability of occurrence can often be mishandled. Ideal risk management should minimize spending on manpower or other resources and at the same time minimize the negative effect of risks. 2. DEFAULT RISK - is related to the probability that some or all of the initial investment will not be returned. The degree of default risk is closely related to the financial condition of the company issuing the security and the security's rank in claims on assets in the event of default or bankruptcy. 3. LIQUIDITY RISK - is associated with the uncertainty created by the inability to sell the investment quickly for cash. An investor assumes that an investment can be sold at the expected price when future consumption is planned. As the investor considers the sale of…
Choose the best answer Between equity and debt capital a.Equity is riskier than debt b.Debt is safer than equity c.Both debt and equity are equally risky d.No option is correct
48) Find out the monetary asset from the following. a. Fixed Liabilities b. Current Liabilities c. Capital d. None of the Options
Below are some statements about risk and investment appraisal. Which one is incorrect? A. Risk-adjusted hurdle rates could be used to allow for the risk of a project B. Risk could be allowed for in a project by shortening the pay-back period C. While sensitivity analysis does not directly imbed risk in the appraisal process it is helpful for identifying "key" variables D. Risk decreases with the length of a project E. Probability analysis can be used to allow for the risk of different economic conditions
LO1 Show the reasons why the net present value criterion is the best way to evaluate proposed investments. LO2 Discuss the payback rule and some of its shortcomings.

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