The Optimal Trade-Off Between Risk and Return for a Given

question 44

Multiple Choice

The optimal trade-off between risk and return for a given portfolio problem can be summarized by the

• A) efficient frontier.
• B) investment frontier.
• C) portfolio boundary.
• D) variance boundary.

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Definitions:

Payback Period Method

A capital budgeting technique that calculates the time needed for an investment to generate cash flows sufficient to recover the initial investment cost.

Capital Budgeting Decisions

The process of planning and evaluating investments in long-term assets, considering their potential to generate future profits.

Long-Term Investments

Investments made with the intention of holding the asset for a period exceeding one year, typically to earn interest, dividends, or capital gains.

Internal Rate of Return

A metric used in capital budgeting to estimate the profitability of potential investments, represented as the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.