Question

If you expect the market to increase which of the following portfolios should you purchase? Select...

If you expect the market to increase which of the following portfolios should you purchase?
Select one:
a. a portfolio with a beta of 1.0
b. a portfolio with a beta of 0
c. a portfolio with a beta of -0.5
d. a portfolio with a beta of 1.9

A firm is evaluating an investment proposal which has an initial investment of $5,000 and cash flows presently valued at $4,000. The net present value of the investment is ______.
Select one:
a. $9,000
b. -$4,000
c. -$1,000
d. $4,000

Please Solve As soon as
Solve quickly I get you two UPVOTE directly
Thank's
Abdul-Rahim Taysir

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Homework Answers

Answer #1

1st Answer:

The correct option is "d"

when you are expecting the market to increase, so you should buy a portfolio whose beta with the market is high. The portfolio with 1.9beta means that if the market increases by 1 then the portfolio will increase by 1.9times.

2nd Answer:

The correct option is "c"

Net Present value = Present value of cash flow to be received - Initial Investment

= 4000 - 5000

= -1000

it shows that the investment is more than what the project will produce.

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