Which of the Following Statements Is Correct

question 134

Multiple Choice

Which of the following statements is correct?

• A) Neither "stand-alone" nor "within-firm" risk takes account of diversification,either by stockholders or by the firm.
• B) If a project's expected returns are highly correlated with returns on the market,this will tend to reduce the project's market risk.
• C) Monte Carlo simulation analysis and sensitivity analysis are similar,but sensitivity analysis is generally harder to use because it requires knowledge of the probability distributions associated with the input variables.
• D) Sensitivity analysis requires a project's beta coefficient,which can be obtained by either the "pure play" or the "accounting beta" method.
• E) If we are choosing between two mutually exclusive projects which have only costs (no revenues),the riskier one should be evaluated with a lower required rate of return.

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Definitions:

Cognitive Dissonance

A state of mental discomfort arising from holding two or more conflicting beliefs, attitudes, or values, often leading to changes in beliefs or behaviors to reduce discomfort.

Aggressive Personality

An Aggressive Personality is characterized by patterns of behavior that express hostility or the desire to dominate others.

Attribution

The process by which individuals explain the causes of behavior and events, either attributing them to internal dispositions or external situations.

Central Route

A method of persuasion that involves thoughtful consideration of the arguments and evidence presented.