Which of the Following Statements Regarding the NPV Decision Rule

question 65

Multiple Choice

Which of the following statements regarding the NPV decision rule is false?

• A) Reject projects with an NPV of zero, as accepting them is equivalent to losing the present value of the projects' costs.
• B) When faced with a set of alternatives, choose the one with the highest NPV.
• C) Accept those projects with a positive NPV, as accepting them is equivalent to receiving their NPV in cash today.
• D) Reject those projects with a negative NPV, as not doing them has NPV = 0.

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Definitions:

Volatility

A statistical measure of the dispersion of returns for a given security or market index.

Delta

A measure in options trading that indicates how the price of an option is expected to change relative to a one-unit change in the price of the underlying asset.

Put Option

A financial contract that gives the holder the right, but not the obligation, to sell a specified amount of an underlying asset at a predetermined price within a fixed period of time.

Binomial OPM

A mathematical model used to price options, considering multiple potential outcomes and the time value of money.