Which of the Following Statements Is FALSE

question 41

Multiple Choice

Which of the following statements is FALSE?

• A)Problems can arise using the IRR method when the mutually exclusive investments have different cash flow patterns.
• B)The IRR is affected by the scale of the investment opportunity.
• C)Multiple incremental IRRs might exist.
• D)The incremental IRR rule assumes that the riskiness of the two projects is the same.

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Definitions:

Covered Interest Arbitrage

A strategy where investors exploit the interest rate differential between two countries while covering exchange rate risk, aiming for guaranteed returns.

Forward Rates

Forward rates are interest rates or foreign exchange rates fixed now for a financial transaction that will occur at a future date.

Spot Rates

Spot Rates refer to the current interest rates available for immediate transactions in the bond market, influencing the pricing of the financial securities.

Interest Rate Parity

A financial theory stating that the difference in interest rates between two countries is equal to the difference between the forward and spot exchange rates of their currencies.