The Payback Period of Project a Is 2 Years While

question 59

Multiple Choice

The payback period of Project A is 2 years while that of Project B is 4 years. Which of the following statements is true?

• A)Project B must be riskier than Project A since it has a longer payback period.
• B)The IRR for Project A will be higher than that of Project B since Project A offers a quicker return on its investment.
• C)Project A should be chosen since it will increase value sooner than will Project B.
• D)None of the above is a true statement.

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Definitions:

Specifying Asset Classes

The process of identifying distinct categories of assets, such as stocks, bonds, and real estate, based on their characteristics and functions in investment portfolios.

Capital Market Expectations

The forecasted future returns, volatilities, and correlations for the major asset classes, which are essential for the strategic asset allocation process.

Investment Objectives

Define the financial goals and strategies of an investor or an investment fund.

Risk

The potential for loss or unfavorable outcomes in any given situation, often assessed in finance as the variability of returns on investments.