FINANCE Final Exam-Exam_HT_16r

growing perpetuity must have a growth rate smaller than the discount rate for its present value to be computable. B. A growing annuity cannot have a growth rate equal to the discount rate for its present value to be computable. C. A project may have multiple IRR´s. D. A project may have no IRR. E. The NPV rule and the IRR rule do not always give the same answer. Question 2 Which of the following conditions is NOT necessary for the Equivalent Annual Annuity rule to be the one to follow? A. The projects must have different life spans. B. The projects must be mutually exclusive. C. The negative cash-flows must precede the positive cash-flows of the projects. D. The projects can be repeated. E. None of the above is necessary. Question 3 The beta of the market portfolio is equal to: A. 0. B. 1. C. Unable to answer without knowing the expected return of the market portfolio. D. Unable to answer without knowing the risk-free rate. E. Equal to the variance of the return of the market portfolio. Question 4 Which of the following statements is FALSE? A. Margin investing is a risky strategy. B. Buying the tangency portfolio on the margin provides a higher expected return than only investing in such portfolio. C. Short-selling the risk-free asset is equivalent to borrowing money at the risk-free rate through a standard loan. D. Because the return of the risk-free asset is fixed and does not move with or against the tangency portfolio, the correlation between the two is one. E. The variance of the risk-free asset is zero. Question 5 Which one of the following statements is correct in an economy where CAPM holds? A. A stock with a negative beta has a zero expected return. B. A stock with a negative beta has an expected return below the risk-free rate. C. The market portfolio has the largest beta. D. The market portfolio has a return equal to the risk-free rate. E. None of the above is correct. Question 6 Which of the following statements is FALSE?