You Are Trying to Decide in Which of the Three

question 1

Multiple Choice

You are trying to decide in which of the three companies you should invest. Refer to the following Payoff Table. If the market declines in the next year, which of the following statements are correct?
i. The Opportunity Loss for Company A is $250.
ii. The Opportunity Loss for Company B is $30.
iii. The Opportunity Loss for Company C is $500.

• A) (i), (ii), and (iii) are all correct statements.
• B) (i) is a correct statement but not (ii) or (iii).
• C) (ii) is a correct statement but not (i) or (iii).
• D) (ii) and (iii) are correct statements but not (i).
• E) (i), (ii), and (iii) are all false statements.

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Definitions:

Inflation

An indicator of how quickly the overall price level for goods and services increases, leading to a decrease in buying power.

Inflation Premium

The additional yield that investors demand on securities to compensate for the loss of purchasing power due to inflation.

Nominal Interest Rate

The stated interest rate of a bond or loan, which does not account for inflation or the compounding of interest.

Bond Yield

The return an investor realizes on a bond, calculated as the annual interest payment divided by the bond's current market price.