Charles Henri Is Considering Investing $36,000 in a Project That

question 47

Multiple Choice

Charles Henri is considering investing $36,000 in a project that is expected to provide him with cash inflows of $12,000 in each of the first two years and $18,000 for the following year.At a discount rate of zero percent this investment has a net present value of ____,but at the relevant discount rate of 17 percent the project's net present value is ____.

• A)$0; -$5,739
• B)$0; -$3,406
• C)$6,000; -$5,739
• D)$6,000; -$3,406
• E)$6,000; $1,897

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Definitions:

Fat Tails

Refers to the occurrences of extreme movements in stock prices or higher than normal risks in investments, which lead to heavy tails in a probability distribution.

Kurtosis

Measure of the fatness of the tails of a probability distribution. Indicates probability of observing extreme high or low values.

Skewness

A measure of the asymmetry of the probability distribution of a real-valued random variable about its mean.

Tail Risk

Risk of extreme events in the far tail of the probability distribution.