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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Which of the following is the most valid justification for including real estate as part of an investmer portfolio? 1 High liquidity. 2 Low project-specific risk. 3 Low management and information costs. 4 Low correlation of real estate with shares and bonds,
Speculation tends to have a high risk and high rate of return compared to investment Select one: O True O False 1
The Fama-French 3-factor model is a multi-factor models that includes two additional risk factors beyond the market risk factor in the CAPM model. These additional factors account for__________. A) Firm-specific risk that the CAPM does not measure. B) Sensitivities of an asset’s return related to its size and its ratio of book-to-market value. C) A and B are both correct
A common approach of estimating the variability of returns involving forecasting the pessimistic, most likely, and optimistic returns associated with the asset is called A. marginal analysis. B. sensitivity analysis. C. break-even analysis. D. financial statement analysis.
Consider the following statement: “In contexts of increased uncertainty, the usefulness of real options when valuing an investment opportunity increases”. Do you agree with this statement? Explain your answer.
Read the following statements w.r.t. investment appraisal techniques and identify the most appropriate option (i) The rate of return method does not take care of timings of returns. (ii) Simple Payback method does not consider time value of money. Select one: a. Both statements are correct O b. First statement alone is correct c. Second statement alone is correct d. Both statements are wrong
By choosing assets that do not exhibit a high positive covariance with each other, the systematic risk be partially eliminated? a.false b.true
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 following statements correctly describe aspects of the diversification benefit associated with combining two assets into a portfolio? Group of answer choices A. When the returns of the two assets are perfectly positively correlated, a zero-risk portfolio can be formed. B. In order to achieve any diversification benefit, the returns of the two assets must be negatively correlated. C. More than one of the other statements is correct. D. Holding all else constant, as the correlation coefficient between the returns of the two assets falls, the risk of the portfolio will also be reduced.
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To obtain the maximum reduction in risk, an investor should combine assets that * A.are negatively correlated. B.have a correlation coefficient of negative one. C.are uncorrelated. Option 5 D.have a correlation coefficient of positive one.
When using the binomial model, you can't make decisions about investment using only the risk-neutral measure because O all investments have the same expected rate of return in the risk-neutral measure. all investors are risk-neutral in the risk-neutral measure. all information about risk was removed from the model by switching from physical to risk-neutral measure. there are undue assumptions made in the construction of the risk-neutral measure. None of the other responses.

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