## Questions and Answers

Why is discounting used in investment appraisal?

What is the primary benefit of diversification?

What is the formula to calculate the present value of a future income?

What is the purpose of the discount rate in investment appraisal?

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What is the primary reason why risk averse people buy insurance?

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What is the Net Present Value (NPV) of an investment?

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What is the expected value of the property if the house is not insured and there is a 5% probability of a P10,000 loss?

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What is the benefit of buying the insurance policy in the example?

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What is the present value of P1000 received in 5 years, with an annual discount rate of 10%?

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What is the significance of the discount factor in investment appraisal?

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What is the insurance premium in the example?

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What is the maximum amount the insurance company agrees to pay if the house is broken into?

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What is the primary function of a risk premium?

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What occurs when an investor's risk aversion increases?

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How is the risk-adjusted discount rate calculated?

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Which of the following investors has the highest risk-adjusted discount rate?

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What is the purpose of modifying the NPV formula to include a risk element?

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What is the initial cost of the investment project?

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What is the purpose of diversification in investing?

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What is the probability of power cuts in 2021?

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What is the expected income if you sell only gas stoves and there are power cuts?

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What is the total income if you diversify and sell both gas stoves and electric stoves, regardless of whether there are power cuts or not?

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What is the advantage of diversifying and selling both gas stoves and electric stoves?

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What is the income earned from electric stoves if you diversify and sell both gas stoves and electric stoves, and there are power cuts?

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What is the expected return on the total investment portfolio Rp in terms of b, Rm, and Rf?

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What is the relationship between the standard deviation of the return on the risky asset (σm) and the risk-free asset (σf)?

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What is the expression for the standard deviation of the portfolio (σp) in terms of b and σm?

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What is the equation that describes the relationship between the portfolio risk σp and expected return Rp?

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What is the intercept of the budget line described by the equation Rp = Rf + (Rm - Rf) / σm * σp?

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What is the slope of the budget line described by the equation Rp = Rf + (Rm - Rf) / σm * σp?

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