Question2
(a)
Required
Provide a brief discussion of approximately 300 words for Gill Yates detailing the risks inherent in stock returns in a portfolio of shares using the concepts of standard deviation and diversification as a basis for your discussion.
Question 3 [19 marks]
(a) Compare NPV, PI and IRR investment criteria. Describe each investment criteria, detailing their advantages and disadvantages. (9 marks)
(b) In calculating a NPV for a series of cash flows there are two assumptions. Identify and discuss these two assumptions. (2 marks)
(c) Identify whether you agree or disagree with the statements and briefly, in few sentences discuss the reason for your agreement or disagreement: (2 marks each/ 8 marks total)
- Using the same discount rate to discount all cash flows ignores the fact that less distant cash flows are preferred to more distant ones.
- The present value of a project is the minimum amount one would have to pay for it to be economically acceptable.
- A project having a positive NPV should always be chosen.
- If a project does not recover its initial outlay within three years, it probably is not worth pursuing.
