Suppose We Compare the Difference Between the NPV of a Financial

question 68

Multiple Choice

Suppose we compare the difference between the NPV of a financial model in which the means are entered for all input random variables and the NPV of a financial model in which the most likely values are entered for all input random variables. A large difference between the NPV's demonstrate:

• A) the value at risk (VAR)
• B) the effect of randomness
• C) the flaw of averages
• D) the bias of the analyst
• E) none of these choices

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Definitions:

Bonds

Fixed-income securities where an investor loans money to an entity (corporate or sovereign) which borrows the funds for a defined period of time at a variable or fixed interest rate.

Average Rate Of Return

A measure of the profitability of an investment, calculated by dividing the average annual profit by the initial investment cost.

Riskiness

The measure of uncertainty or potential for loss in an investment or economic activity.

Bonds

Financial instruments representing a loan made by an investor to a borrower, typically governmental or corporate entities, with agreed terms for interest payments and the return of principal.