Question: True or false? If it is true, please justify why it is true statement. If it is false, please explain. exactly why it is false.
True or false? If it is true, please justify why it is true statement. If it is false, please explain. exactly why it is false.
a. A portfolio comprises two stocks, A and B, with equal amounts of money invested in each at the beginning. If stock A's stock price increases and that of stock B decreases, the weight of stock A in the portfolio will increase.
b. The IRR rule can be applied when evaluating two mutually exclusive projects: after calculation their IRRs, the project with highest IRR should be selected.
c. If an investor with $400,000 to invest puts $100,000 in S&P 500 index fund and $300,000 in Treasury Bills, her portfolio beta will be 0.25.
d. The growing perpetuitys present formula is PV=C/(r-g). Thus, if the cash flows growth rate g is above the discount rate r, this growing perpetuitys present value will be negative.
e. Facing the following 2 choices: (i) A risky $8,000 investment with 50% of the chance receive nothing and 50% receive $20,000, or, ii), an $8,000 investment with a payoff of $10,000 for sure, a rational investor prefers (i) rather than (ii).
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
