2. FINANCIAL DECISION MAKING AND LAW OF ONE PRICE Flashcards
Should you invest into a positive NPV project? Why?
What is arbitrage?
What is the law of one price?
What is the risk-free rate?
what does current interest rate tell us?
define the 1-year discount factor, if r is the 1-year interest rate
what is the term for describing the value of an investment expressed in today’s/future $?
when should projects be undertaken according to npv decision rule?
will 2 investments with the same expected payoff have the same price if one investment is risky and the other one risk free?
why or why not?
how do you calculate the price of a risky investment?
why do securities with cash flows that correlate negatively with the market have a negative risk premium?
why do securities with cash flows that positively correlate with the market have a positive risk premium?
you have 3 securities A, B and C. the cash flows of security A and the negative cash flows of security B are equal to the cash flows of security C.
what can be inferred about the relative prices of securities A, B and C?
