Question Details

Sources of positive net present value projects include



1.	Sources of positive net present value projects include
a.	buyer preferences for established brand names
b.	economies of large-scale production and distribution
c.	patent control of superior product designs or production techniques
d.	a and b only
e.	a, b, and c



2.	Receiving $100 at the end of the next three years is worth more to me than receiving $260 right now, when my required interest rate is 10%.
	a.	True
	b.	False

	3. 	The number of standard deviations z that a particular value of r is from the mean ȓ can be computed as z = (r - ȓ)/ Suppose that you work as a commission-only insurance agent earning $1,000 per week on average.  Suppose that your standard deviation of weekly earnings is $500.  What is the probability that you zero in a week?  Use the following brief z-table to help with this problem.

			Z value	Probability
		-3		.0013
		-2		.0228
		-1		.1587
		0		.5000	

a.	1.3% chance of earning nothing in a week
b.	2.28% chance of earning nothing in a week
c.	15.87% chance of earning nothing in a week
d.	50% chance of earning nothing in a week
e.	none of the above

	t

			T
4.	Consider an investment with the following payoffs and probabilities:
		State of the Economy	Probability	Return
		Stability	.50	1,000
		Good Growth	.50	2,000
	Determine the expected return for this investment.
a.	1,300
b.	1,500
	c.	1,700
	d.	2,000
	e.	3,000

	5.	Consider an investment with the following payoffs and probabilities:
State of the Economy	Probability	Return
GDP grows slowly	.70	1,000
GDP grow fast	.30	2,000
	Let the expected value in this example be 1,300.  How do we find the standard deviation of the investment?
a.	 =  { (1000-1300)2 + (2000-1300)2 }
b.	 =  { (1000-1300) + (2000-1300) }
c.	=  { (.5)(1000-1300)2 + (.5)(2000-1300)2 }
d.	=  { (.7)(1000-1300) + (.3)(2000-1300) }
e.	=  { (.7)(1000-1300)2 + (.3)(2000-1300)2 }

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
7.	Two investments have the following expected returns (net present values) and standard deviations:
		PROJECT	Expected Value	Standard Deviation
		Q		$100,000	$20,000
		X	 	$50,000	$16,000	
	Based on the Coefficient of Variation, where the C.V. is the standard deviation dividend by the expected value.
a.	All coefficients of variation are always the same.
b.	Project Q is riskier than Project X
c.	Project X is riskier than Project Q
d.	Both projects have the same relative risk profile
e.	There is not enough information to find the coefficient of variation.



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