(Consider This)Ponzi Schemes Are Investments in Which

question 17

Multiple Choice

(Consider This) Ponzi schemes are investments in which:

• A) funds are invested solely in high-risk foreign financial assets.
• B) all investors are guaranteed to lose money.
• C) investors are unknowingly paid returns from funds contributed by new investors.
• D) the profitability of the investments depends on whether the economy grows or is in recession.

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Definitions:

Internal Rate of Return

The discount rate at which the net present value of all the cash flows (both positive and negative) from a project or investment equals zero.

Multiple IRRs

The situation where a project has more than one internal rate of return, occurring due to unconventional cash flows.

Reinvestment Assumption

The theory that cash flows will be reinvested at a constant rate, often used in financial modeling.

Cost of Capital

The rate of return that a business must achieve in order to generate value, representing the opportunity cost of investing capital in a specific business rather than in an alternative venture.