The Project Profitability Index and the Internal Rate of Return

question 128

Multiple Choice

The project profitability index and the internal rate of return:

• A) will always result in the same preference ranking for investment projects.
• B) will sometimes result in different preference rankings for investment projects.
• C) are less dependable than the payback method in ranking investment projects.
• D) are less dependable than net present value in ranking investment projects.

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Definitions:

Rate of Return

The gain or loss on an investment over a specified time period, expressed as a percentage of the investment's cost.

Exercise Price

The exercise price is the price at which the holder of an option can buy (in the case of a call option) or sell (in the case of a put option) the underlying asset.

Standard Deviation

A statistical measure of the dispersion or variability of a set of data points, representing the average difference from the mean; widely used in finance as a measure of investment risk.

Arbitrage Opportunity

The chance to buy an asset at a low price in one market and simultaneously sell it at a higher price in another, securing a risk-free profit.