Question

QUESTION 18

1. Diversification refers to the _____.

	A.	reduction of the stand-alone risk of an individual investment, measured by the standard deviation of its returns, by combining it with other investments in a portfolio
	B.	reduction of the systematic risk of an individual investment, measured by the standard deviation of its returns, by combining it with other investments in a portfolio
	C.	reduction of the systematic risk of an individual investment, measured by its beta coefficient, by combining it with other investments in a portfolio
	D.	reduction of the stand-alone risk of an individual investment, measured by its beta coefficient, by combining it with other investments in a portfolio
	E.	reduction of the unsystematic risk of an individual investment, measured by its coefficient of variation, by combining it with other investments in a portfolio

QUESTION 19

1. Which of the following statements is true about capital budgeting analysis?

	A.	Higher discount rates are used for computing the net present values (NPVs) of riskier cash flows.
	B.	The payback period method should be used for capital budgeting decisions if the project has multiple cash outflows.
	C.	The payback period method should be used for capital budgeting decisions if there is a conflict in the project rankings as per the NPV method and the IRR method.
	D.	The net present value (NPV) method should be used to evaluate independent projects, and the internal rate of return (IRR) method for mutually exclusive projects.
	E.	A project with only cash outflows and no cash inflows would have two internal rates of return (IRRs).

5 points   

QUESTION 20

1. Other things held constant, if the investors become less risk averse, the new security market line (SML) would _____.

	A.	not be affected
	B.	shift down
	C.	shift up
	D.	have a steeper slope
	E.	have a less steep slope

Answer 1

QUESTION 18

1. Diversification refers to the _____.

A.

reduction of the stand-alone risk of an individual investment, measured by the standard deviation of its returns, by combining it with other investments in a portfolio

QUESTION 19

1. Which of the following statements is true about capital budgeting analysis?

A.

Higher discount rates are used for computing the net present values (NPVs) of riskier cash flows.

QUESTION 20

1. Other things held constant, if the investors become less risk averse, the new security market line (SML) would _____.

E.	have a less steep slope