1. If the interest rate is 6%, which of these investments would you prefer?
A) A single payment of $500 in year 3. B) A payment of $40 a year for 20 years starting in one year’s time. C) A perpetuity of $30 a year starting in one year’s time. D) A payment of $342.17 today
2. The common stock of Pops Foods has produced returns of 10 percent, -6 percent, and 11 percent for the past three years, respectively. What is the standard deviation of these returns?
11.62 percent 10.41 percent 9.54 percent 8.52 percent
3. Which of the following is NOT one of the conflicts with using IRR when analyzing mutually exclusive projects and projects with unconventional cash flows?
A. IRR may yield no usuable answer or multiple answers with odd cash flows.
B. Cash flows are reinvested at the IRR instead of cost of capital.
C. A lower IRR can be better if a cash inflow is followed by cash outflows.
D. Projects with significantly different costs.