Which of the Following Statements Regarding Real Options Is Not

question 4

Multiple Choice

Which of the following statements regarding real options is not true?

• A) Similar to financial options, real options are traded on an open exchange.
• B) Their consideration in capital budgeting analysis is designed to complement conventional DCF models.
• C) They refer to options on real assets (i.e., tangible and intangible property).
• D) They can never reduce the NPV of a proposed investment; they can only increase its NPV.
• E) They represent one way of handling risk and uncertainty in the capital budgeting process.

Understand the concept of Effective Annual Rate (EAR) and how it is calculated.

Calculate and differentiate between nominal and effective interest rates.

Apply knowledge of interest rates to evaluate financial products such as loans, credit cards, and annuities.

Assess investments and savings strategies using rate of return calculations.

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Definitions:

Good Y

A term used in economics to represent a generic second good, often used in theoretical models comparing two different goods.

Budget Constraint

The restrictions on the sets of goods and services a consumer can purchase, determined by their income and the cost of these items.

Nachos

A Mexican dish consisting of heated tortilla chips covered with melted cheese and often also served with a variety of toppings.

Water

A transparent, tasteless, odorless, and nearly colorless chemical substance that is the main constituent of Earth's streams, lakes, and oceans, and the fluids of most living organisms.