Taussig Technologies Is Considering Two Potential Projects, X and Y

question 5

Multiple Choice

Taussig Technologies is considering two potential projects, X and Y. In assessing the projects' risks, the company estimated the beta of each project versus both the company's other assets and the stock market, and it also conducted thorough scenario and simulation analyses. This research produced the following data: Which of the following statements is CORRECT?

• A) Project X has more stand-alone risk than Project Y.
• B) Project X has more corporate (or within-firm) risk than Project Y.
• C) Project X has more market risk than Project Y.
• D) Project X has the same level of corporate risk as Project Y.
• E) Project X has the same market risk as Project Y since its cash flows are not correlated with the cash flows of existing projects.

Calculate and interpret portfolio standard deviation and beta as measures of risk.

Understand the concept of correlation and its impact on portfolio risk.

Interpret regression outputs related to stock and market returns.

Understand and apply the concept of the Sharpe ratio in evaluating investment performance.

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Definitions:

Milgram

Refers to Stanley Milgram, a psychologist known for his groundbreaking research on obedience, demonstrating that people are willing to obey authority figures to the extent of causing harm to others.

Agentic State

A psychological state in which an individual sees themselves as an agent executing the orders of an authority, often used to explain obedience to authority.

Submissive

Characterized by a willingness to yield to the authority or will of others, often at the cost of one's own preferences or needs.

Responsibility

The state or fact of having a duty to deal with something or of having control over someone.