You Have Developed the Following Data on Three Shares

question 21

Multiple Choice

You have developed the following data on three shares: If you are a risk minimiser, you should choose Share __________ if it is to be held in isolation and Share __________ if it is to be held as part of a well-diversified portfolio.

• A) A; A
• B) A; B
• C) B; A
• D) C; A
• E) C; B

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Definitions:

Mutually Exclusive

Referring to events or choices that cannot occur or be taken simultaneously; selecting one option excludes the availability or selection of the other.

Payback Cutoff

The maximum acceptable period within which an investment should recover its initial costs, used as a criterion for investment decisions.

Net Present Values

The calculation of the present value of an investment's expected cash flows minus the initial investment cost.

Positive NPV

Refers to a net present value calculation indicating that the projected earnings (discounted back to their present value) exceed the initial investment.