Question Details

The net present value of an investment represents 



1.		A change in the level of an economic activity is desirable and should be undertaken as long as the marginal benefits exceed the ____.
a.	marginal returns
b.	total costs
c.	marginal costs
d.	average costs
e.	average benefits




	2.	The level of an economic activity should be increased to the point where the ____ is zero.
a.	marginal cost
b.	average cost
c.	net marginal cost
d.	net marginal benefit
e.	none of the above



	3.	The net present value of an investment represents 
a.	an index of the desirability of the investment
b.	the expected contribution of that investment to the goal of shareholder wealth maximization
c.	the rate of return expected from the investment
d.	a and b only
e.	a and c only



	4.	Generally, investors expect that projects with high expected net present values also will be projects with
a.	low risk
b.	high risk
c.	certain cash flows
d.	short lives
e.	none of the above



	5.	An closest example of a risk-free security is
a.	General Motors bonds
b.	AT&T commercial paper
c.	U.S. Government Treasury bills
d.	San Francisco municipal bonds
e.	an I.O.U. that your cousin promises to pay you $100 in 3 months


	
6.	An investment advisor plans a portfolio your 85 year old risk-averse grandmother.  Her portfolio currently consists of 60% bonds and 40% blue chip stocks.  This portfolio is estimated to have an expected return of 6% and with a standard deviation 12%.  What is the probability that she makes less than 0% in a year? [A portion of Appendix B1 is given below, where z = (x - with as the mean and as the standard deviation.]
a.	2.28%
b.	6.68%
c.	15.87%
d.	30.85%
e.	50%
		Table B1 for Z
		Z      Prob.
	-3	.0013
	-2.5	.0062
	-2.	.0228
	-1.5	.0668
	-1	.1587
	-.5	..3085
	  0	.5000



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