In the Previous Problem You Found the Benefit from Delaying

question 9

Multiple Choice

In the previous problem you found the benefit from delaying an investment decision. Now use the same data to calculate the effect of waiting on the project's risk. By how much will delaying reduce the project's coefficient of variation? (Hint: Use the expected NPV as found in Problem 14.)

• A) 2.23
• B) 2.46
• C) 2.70
• D) 2.97
• E) 3.27

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Definitions:

Standard Deviation

A statistical measurement that depicts the variation or dispersion of a set of values, commonly used in finance to measure the volatility or risk of an investment.

Defined Contribution Plan

A type of retirement savings plan where the amount contributed to the plan is defined, but the future benefit amounts are not guaranteed.

Risk-free Return

The return on an investment with no risk of financial loss, typically associated with government bonds.

Standard Deviation

A statistical measurement that reflects the amount of variance or dispersion of a set of values. A low standard deviation means that the values tend to be close to the mean, while a high standard deviation means that the values are spread out over a wider range.