Question 1: Which of the following is the best measure of the systematic risk in a portfolio?
a. variance
b. standard deviation
c. covariance
d. beta
Question 2: The expected return for the asset shown in the following table is 18.75 percent. If the return distribution for the asset is described as below, what is the standard deviation for the asset's returns?
Return Probability
0.10 0.25
0.20 0.50
0.25 0.25
a. 0.002969
b. 0.000613
c. 0.015195
d. 0.054486
Question 3: Which of the following statements is most correct?
a. If Project A has a higher IRR than Project B, then Project A must also have a higher NPV.
b. If a project's internal rate of return (IRR) exceeds the cost of capital, then the project's net present value (NPV) must be positive.
c. The IRR calculation implicitly assumes that all cash flows are reinvested at a rate of return equal to the cost of capital.
d. Statements a and c are correct.
e. None of the statements above is correct.
Question 4: You are deciding among two mutually exclusive projects. The two projects have the following cash flows:
Project A Project B
Year Cash Flow Cash Flow
0 -$50,000 -$30,000
1 10,000 6,000
2 15,000 12,000
3 40,000 18,000
4 20,000 12,000
Question 5: The company's weighted average cost of capital is 10 percent. What is the net present value (NPV) of the project with the highest internal rate of return (IRR)?
a. $ 7,090
b. $ 8,360
c. $11,450
d. $12,510
e. $15,200