Suppose Project a Has an IRR of 10 Percent and Project

question 50

Multiple Choice

Suppose project A has an IRR of 10 percent and project B has an IRR of 20 percent.One can then conclude that:

• A) Project A is preferred to B
• B) Project A has a negative NPV while project B has a positive NPV.
• C) Project B has a negative NPV while project A has a positive NPV.
• D) It is impossible to rank the two projects without further information.

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Definitions:

Black-Scholes

A mathematical model used to estimate the theoretical price of European put and call options, considering factors such as risk-free rate, volatility, and time.

Instantaneous Risk-free Rate

The theoretical rate of return of an investment with no risk of financial loss, typically considered as a very short-term government bond yield.

Hedge Ratio

The ratio of the size of a position in a hedging instrument to the size of the position being hedged.

Strike Price

The price at which the holder of an option contract has the right to buy or sell the underlying asset.