1. Your grandmother has asked you to evaluate an investment opportunity. The investment is a financial security that pays $50 at the end of each of next three years (the first cash flow will occur at t=1), with a final payment of $1050 at the end of Year 4. This security costs $900. You can also deposit $900 in a bank account with an APR of 8% with quarterly compounding. Investing in the security is as safe as depositing money in the bank account. What is the NPV of this investment in the security?
a. The NPV of this investment is $3.64
b. The NPV of this investment is -$6.73
c. The NPV of this investment is $0.63
d. The NPV of this investment is -$12.20
2. When selecting a benchmark, it is important to match the security or portfolio that will be evaluated to securities:
-that have an opposing style.
-identical factor betas for all factors in the pricing model being utilized.
-that closely mimic the overall market. with the same PE ratios.
-of similar style that are available for purchase