A Method Which Involves Calculating the Annual Cash Flow of an Annuity

question 3

Multiple Choice

A method which involves calculating the annual cash flow of an annuity that has the same life as the project and whose present value equals the NPV of the project is:

• A)the chain of replacement method.
• B)the equivalent annual value method.
• C)the constant chain of replacement method.
• D)none of the given options.

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Definitions:

Well-diversified Portfolio

A portfolio that includes a wide variety of investments across different asset classes in order to reduce risk.

Variance

A statistical measure of the dispersion of returns for a given security or market index, often used to gauge volatility.

Fairly Priced Securities

Securities that are priced accurately based on their inherent risk and expected return.

Alphas

The excess returns of an investment relative to the return of a benchmark index, indicating the added value by the portfolio manager.