1. Which one of the following stä ermined at the end of the period and mut of fa

Question

1. Which one of the following stä ermined at the end of the period and mut of fav he ion is described by ar are always higher than e a ist becausenvalud ealized returns are at the b. A probability distribution and their likelihood c. Preferred generally fixed d. The equity risk of a portfolio. is stocks are less risky than common interest (o) of of market risk and, therefore, the real risk-free rate of 2. Given the anticipated rate of inflation (i) of 1.7% and 1.4%, what is the nominal risk-free rate of interest (rf)? 1.7% 3.1% c. 2.3% d. 1.4% 3. You have the opportunity to buy a perpetuity wh required rate of return on this investment is 12 perce buying or not buying the investment if it were offered at a which pays should be You should be essentially indifferent to stment inent is 12 perth ays $720 annually forever. Your pr #5,000.00 720 b, $6,000.00 c. $4,333.33 d. $6,666.67 3640 4. J.D. Edward's is considering a new investment. The investment costs expected to generate $95,000 in year one, $105,000 What is the Payback Period (PB) of the project? in year two, and $130,000 in year three. a. 2.05 years b. 1.25 years c. 2.15 years d. 2.85 years Page 2 of 20

Explanation / Answer

Option C 2.15 years is correct Year Cash flow Cummulative 0        -2,20,000          -2,20,000 1              95,000          -1,25,000 2          1,05,000             -20,000 3          1,30,000           1,10,000 Paybackperiod=2+20000/(110000-(-20000))                  2.15 Years

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