What is the internal rate of return (IRR)? A) The discount rate that makes the NPV of a project zero B) The rate of return that minimizes the risk of a project C) The return earned on the initial investment over a fixed period D) The expected rate of return in the futurestep by step answer
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A: Let's break this down step by step to calculate Anthony's total dollar return on the stock.
What is the
A) The discount rate that makes the NPV of a project zero
B) The rate of return that minimizes the risk of a project
C) The return earned on the initial investment over a fixed period
D) The expected rate of return in the future
step by step answer
Step by step
Solved in 2 steps
- An efficient capital market is best defined as a market in which security prices reflect which one of the following? Multiple Choice A Current inflation B A risk premium C All available information D The historical arithmetic rate of return E The historical geometric rate of returnAnother name for the expected value of an investment would be: Answer a. The mean value b. The upper-end value c. The certain value d. The risk-free valueDraw the profit diagram of the portfolio just drawn (and clearly state any assumptions you make). The profit is equal to the difference between the payoff of the portfolio at expiry (maturity) date and the cost of the portfolio. Is the cost of the portfolio positive?
- The expected rate of return of an investment ________. a. equals one of the possible rates of return for that investment b. equals the required rate of return for the investment c. is the mean value of the probability distribution of possible returns d. is the median value of the probability distribution of possible returns e. is the mode value of the probability distribution of possible returnsWhat is the Capital Asset Pricing Model (CAPM)? Derive the risk premium when beta is between 0 and 1. Interpret your result.* Consider the following portfolio II: long one call with exercise price E₁, long one put with exercise price E2, short one call with exercise price E, and short one put with exercise price E1+E2 E. Consider the case E₁ < E < E2 where E < 2 ⚫ (a) Write down the pay-off function A(S) for the portfolio II. • • (b) What is the value of the pay-off function when S < E₁? (c) What is the value of the pay-off function when E < S < E₂?
- In the capital asset pricing model, the expected return on an asset with a beta equal to zero would be equal to the risk-free rate the expected return on the market portfolio the risk premium on the market portfolio zeroK possible Risk-Free Rate. What is a risk-free rate? Give an example of an investment with a risk free rate. Why is there no risk? A risk-free rate is: (Select the best answer below.) OA. an interest rate that is not guaranteed on an investment for a specified period. OB. an interest rate guaranteed on an investment for a unspecified period. OC. an interest rate guaranteed on an investment for a specified period. OD. an interest rate that is not guaranteed on an investment for an unspecified period. There is no risk because a risk-free investment: (Select the best answer below.) OA. pays an interest rate guaranteed on an investment for an unspecified period. OB. would pay investors even if the financial institution went into bankruptcy. OC. is a checking account. OD. is a zero interest loan.What security provides a good estimate of the long-term nominalrisk-free rate?
- 4. Explain what the Capital Asset Pricing Model (CAPM) is and calculate and explain the result of the CAPM based on the following data. a. Expected Return: 8% b. Risk-free rate: 4% c. Beta of the investment: 1.2 ER=Rf+B(ERm - Rf) where: ER = expected return of investment Rf risk-free rate B;= beta of the investment - (ERm - Rf) = market risk premiumHow does the size of the initial investment affect the internal rate of return on the net present value models?Which of the following discounts future cash flows to their present value at the expected rate of return, and compares that to the Initial Investment? A. internal rate of return (IRR) method B. net present value (N PV) C. discounted cash flow model D. future value method