Training test for current control 7

The only difference between discounted payback period method and traditional payback period method is?

• Discounted payback period method uses discounted free cash flows in calculating the payback period
• Discounted payback period method uses present value of money in calculating the payback period
• Discounted payback period method uses future value of money in calculating the payback period
• Discounted payback period method uses actual undiscounted free cash flows in calculating the payback period

What is a holding-period return?

• The rate of return earned on an investment, which equals the dollar gain divided by the amount invested
• The arithmetic mean or average of all possible outcomes where those outcomes are weighted by the probability that each will occur
• The potential variability in future cash flows
• Computing the variance in the possible investment returns

What is expected rate of return?

• It is the arithmetic mean or average of all possible outcomes where those outcomes are weighted by the probability that each will occur
• It is the rate of return earned on an investment, which equals the dollar gain divided by the amount invested
• It is the potential variability in future cash flows
• It is computing the variance in the possible investment returns

What is the name of the potential variability in future cash flows?

• Risk
• Expected return cost
• Realized rate of return
• Standard variation

What is systematic risk?

• The risk related to an investment return that cannot be eliminated through diversification
• The risk related to an investment return that can be eliminated through diversification
• Company unique risk or diversifiable risk
• The result of factors that are unique to the particular firm

What is unsystematic risk?

• The risk related to an investment return that can be eliminated through diversification
• The risk related to an investment return that cannot be eliminated through diversification
• Company expected risk
• The result of factors that are general to any firm

What is the minimum rate of return necessary to attract an investor to purchase or hold a security?

• Required rate of return
• Expected rate of return
• Risk
• Fixed interest rate

What is risk premium?

• The additional return expected for assuming risk
• Required rate of return, or discount rate, for riskless investments
• A model stating that the expected rate of return on an investment
• The return line that reflects the attitudes of investors

What is risk-free rate of return?

• It is the required rate of return, or discount rate, for riskless investments
• It is the additional return expected for assuming risk
• It is a model stating that the expected rate of return on an investment
• It is the return line that reflects the attitudes of investors

What is the name for diversification between different types of assets?

• Asset allocation
• Beta
• Characteristic line
• Market risk