The Price of BHP Is $30 Per Share and That

question 17

Multiple Choice

The price of BHP is $30 per share and that of RIO is $50 per share. The price of BHP increases to $35 per share after one year and to $40 after two years. Also, shares of RIO increase to $60 after one year and to $70 after two years. If your portfolio comprises 100 shares of each security, what is your portfolio return in year 1 and year 2? Assume no dividends are paid.

• A) 18.75%, 15.79%
• B) 18.01%, 14.52%
• C) 18.62%, 17.75%
• D) 19.97%, 17.85%

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Definitions:

Net Cash Flows

The difference between a company's cash inflows and outflows in a given period, indicative of its financial health.

Capital Budgeting

The process of evaluating and selecting long-term investments consistent with the firm's goal of wealth maximization.

Net Cash Flows

The difference between cash inflows and outflows during a specific period, reflecting the company's financial health.

Internal Rate of Return

A financial metric used to evaluate the profitability of potential investments, calculating the discount rate at which the net present value of costs and benefits of an investment equals zero.