Consider an Investment That Pays $1,000 with Certainty at the End

question 25

Multiple Choice

Consider an investment that pays $1,000 with certainty at the end of each of the next four years.If the investment costs $3,500 and has an NPV of $74.26,then the four year risk-free interest rate is closest to:

• A) 4.5%
• B) 4.58%
• C) 4.55%
• D) 4.53%

Understand the basic concepts and calculation of variance and standard deviation for financial assets.

Comprehend the factors affecting expected returns on stocks and how they are calculated.

Grasp the principles of the Capital Asset Pricing Model (CAPM) and its implications on expected returns.

Understand the nature of diversified and non-diversified risk in portfolio management.

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Definitions:

Coefficient

A numerical or constant quantity placed before and multiplying the variable in an algebraic expression, often representing a measure of some property.

Midpoint Formula

A method used in geometry and economics to find the midpoint or the average of two points on a line segment.

Consumer Expenditure

The total amount spent by consumers on goods and services in a given period.