If a Decision Tree Indicates an Expected NPV of $1

question 74

Multiple Choice

If a decision tree indicates an expected NPV of $1 million,then:

• A) at least one of the outcomes had a negative NPV.
• B) all of the outcomes had a positive NPV.
• C) $1 million Is the firm's minimum guaranteed profit.
• D) the project still contains uncertainty.

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Definitions:

Asset Allocation

The strategic distribution of investment across various asset classes such as stocks, bonds, and real estate to optimize risk and return.

Active Management

Attempts to achieve portfolio returns more than commensurate with risk, either by forecasting broad market trends or by identifying mispriced sectors of a market or particular securities.

Target-date Funds

Mutual funds that automatically adjust their asset mix towards more conservative investments as the target date (usually retirement) approaches.

Asset Allocation

The process of dividing an investment portfolio among different asset categories, such as stocks, bonds, and cash, to optimize risk and reward based on an individual's goals and risk tolerance.