Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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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
d.Cashflows may include depreciatipon expenses and amortization costs.
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- Discuss why it is advisable to invest in a group of financial assets rather than investing in just one, even if this, on average, has offered a high historical return (generally, above the market return).arrow_forward“Explain the reasons why the net present value (NPV) method of investment appraisal is likely to be more reliable than the accounting rate of return method (ARR).”arrow_forwardAll of the following are determinants of cap rates in the property asset market, except: Select one: a. Comparative yields in the capital market. b. The risk perceived for the property (as determined in the space and capital market). c. The net operating income divided by the property price. d. The expected growth in property rents (as determined in the space market). e. The risk-free rate.arrow_forward
- The systematic risk principle states that the expected return on a risky asset depends only on which one of the following? Unsystematic risk Market risk Diversifiable riskarrow_forwardIf net present values are used to evaluate two investments that have equal costs and equal total cash flows, the one with more cash flows in the latter years has the higher net present value. OTrue O Falsearrow_forwardCombining two or more assets in an investment portfolio will typically lead to diversification benefits.(i) What is the benefit of diversification?(ii) What is the general condition under which diversification will have benefits? Briefly explain why.arrow_forward
- An advantage of the internal rate of return method is that a.it considers the time value of money. b.it can rank proposals of equal lives. c.it considers the cash flows of the investment. d.All of these choices are correct.arrow_forwardWhich of the following statements is true? Multiple Choice When NPV is 0, the IRR is equal to the discount rate. When NPV is 0, the investment is not making a profit. In calculating IRR, we make the assumption all cash flows are reinvested at the discount rate. NPV is a good measure to use when comparing investments of different sizes.arrow_forwardIn 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.arrow_forward
- The profitability index is another method to evaluate capital investments. If you are trying to compare investments of different sizes, why is the profitability index a better way to do this when compared to the net present value method?arrow_forwardAccording to the capital asset pricing model, assets with Lower; lower; unsystematic Higher; higher, unsystematic Lower; higher; unsystematic Higher; higher; systematic Higher; lower; systematic betas have expected returns because betas quantify the degree of risk. Please fill in the blank.arrow_forward28)arrow_forward
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