The Internal Rate of Return

question 19

Multiple Choice

The internal rate of return:

• A)Is also known as the investment of investor's yield
• B)Represents a return on investment expressed as a compound rate of interest
• C)Is calculated by setting the price of an investment equal to the stream of cash flows it generates and solving for the interest rate
• D)Can be defined by all of the above

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Definitions:

Dynamic Hedging

A strategy that involves periodically adjusting the quantities of instruments used in a portfolio to hedge against risk as market conditions change.

Out-of-the-money

A term used in options trading to describe an option that has no intrinsic value. A call option is out-of-the-money if the stock price is below the strike price, and a put option is out-of-the-money if the stock price is above the strike price.

Intrinsic Value

The intrinsic worth of an asset, determined by the underlying true value encompassing all elements of the business, covering both tangible and intangible factors.

Put Option

A financial contract that gives the buyer the right, but not the obligation, to sell an asset at a specified price within a specific time period.