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- The following are the reasons why investors are holding different investment 0/1 despite of having similar objectives EXCEPT Rate of Return Risk tolerance Risk aversion Capital requirement The following are investment constraints EXCEPT 0/1 Unique needs Liquidity Time horizon Risk toleranceWhen using the NPV method for a particular investment decision, if the present value of all cash Inflows Is greater than the present value of all cash outflows, then _______ . A. the discount rate used was too high B. the investment provides an actual rate of return greater than the discount rate C. the investment provides an actual rate of return equal to the discount rate D. the discount rate is too low4. Which of the following statements is (are) true? I. CAT-bonds and insurance policies are capital market risk financing products. II. If a project has multiple IRRS, the NPV is positive at the highest IRR. a. I only b. Il only c. Both I and II d. Neither I nor II Od
- If a firm uses its weighted average cost of capital (WACC) as the discount rate for all of the projects it undertakes then the firm will tend to: I. reject some positive net present value projects. II. accept some negative net present value projects. III. favor low risk projects over high risk projects. IV. increase its overall level of risk over time. Group of answer choices I and III only III and IV only I, II, and III only I, II, and IV only I, II, III, and IVWhich of the following is TRUE about liquidity? a. All assets should be put in liquid asset so that it is easy to use when necessary b. In most of the cases, the more liquid asset provides the lower return c. Investors should not care about liquidity in order to have a balanced portfolio investment d. Liquidity requirement does not have any impact on the return.6. Assuming that their NPVs based on the firm's cost of capital are equal, the NPV of a project whose cash flows accrue relatively rapidly will be more sensitive to changes in the discount rate than the NPV of a project whose cash flows come in later in its life. Group of answer choices True False
- Consider the following statement: In a capital rationing problem withdivisible investments, if all projects have positive present worths, all of theinvestment capital will be used. Solve, a. This statement is true b. This statement is false c. Not enough information is given; the numeric values of the present worths of the projects are required to know whether this statement is true or false d. Not enough information is given; the numeric values of the IRRs of the projects and the value of MARR are required to know whether this statement is true or falseYou would like to invest in a portfolio to the right of the optimal risky portfolio, on the capital allocation line. What do you need to do to achieve this? Select one: O a. It is not possible to invest to the right of the optimal risky portfolio O b. Borrow and invest in the optimal risky portfolio O c. Lend money at the risk-free rate of return O d. Short sell the optimal risky portfolioWhich 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
- The capital asset pricing model expresses the cost of equity as a function of a return on riskless assets, a market premium, and: Select one:a. Unsystematic risk.b. None of these.c. The cost of debt.d. Systematic risk.The Cost of capital is the Select one: a. Average expected return on capital b. Highest expected return on capital c. Low expected return on capital d. High expected return on capital e. None of the optionLO1 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.