10 Questions
What is the primary reason for using discounting in project appraisal?
To account for the degree of risk aversion of decision makers
What is the risk-adjusted discount rate used for in project appraisal?
To account for the degree of risk aversion of decision makers
What is the net present value (NPV) used for in investment appraisal?
To determine the viability of a project
What is risk aversion in the context of investment decision making?
A preference for certain outcomes over uncertain ones
What is the purpose of calculating the expected return of an investment portfolio?
To evaluate the performance of an investment portfolio
How can an individual reduce risk in an investment portfolio?
By diversifying the portfolio
What is the relationship between risk and return in an investment portfolio?
Higher risk is associated with higher returns
What is the purpose of uncertainty analysis in investment decision making?
To evaluate the potential outcomes of an investment under different scenarios
What is the role of discounting in uncertainty analysis?
To account for the time value of money and risk aversion
What is the relationship between risk aversion and the demand for risky assets?
Risk-averse individuals demand fewer risky assets
Test your understanding of the relationship between portfolio risk and expected return, including the budget line equation and its components. Learn how to calculate the standard deviation of a portfolio and analyze the risk-free asset and risky asset.
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