When Reviewing the Net Present Profile for a Project

question 60

Multiple Choice

When reviewing the net present profile for a project,

• A) the higher the discount rate, the higher the NPV.
• B) the higher the discount rate, the higher the IRR.
• C) the IRR will always be a point on the horizontal axis line where NPV = 0.
• D) the IRR will always be a point on the horizontal axis equal to the required return.

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Definitions:

Covariances

A measure that indicates the extent to which two variables change together, determining the degree of their correlation.

Expected Return

The weighted average of all possible returns for an investment, with weights being the probabilities of each outcome.

Standard Deviation

A statistical measure of the dispersion of returns for a given security or market index, indicating how much returns can deviate from the average return.

Correlation

A statistical measure indicating the degree to which two variables' movements are associated with each other, ranging from -1 (perfect negative correlation) to 1 (perfect positive correlation).