Risks And Diversification & Efficient Market Hypothesis
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- Risks And Diversification & Efficient Market Hypothesiseconomics-mcqs › risks-and-diversification-efficient-market-hypothesis
- Published
- 30 May 2019
- Last updated
- 28 May 2026
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JCB, a manufacturer of agricultural and construction machinery, has the chance to buy a new factory today that will yield Rs 50 million after four years. Given an interest rate of 6%, what is the highest price JCB should pay for this project to be financially viable?
Multiple choice question for Risks And Diversification & Efficient Market Hypothesis. Select an option, then review the explanation below.
Explanation
To determine the maximum amount JCB should invest, we calculate the present value of Rs 50 million receivable in 4 years discounted at 6%. Using the formula PV = FV / (1 + r)^n, we get PV = 50,000,000 / (1.06)^4 = Rs 39,604,682. Thus, the project should not cost more than this amount.
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Practice related questions from the same subject.
- 1.When do speculative bubbles tend to form in the stock market?
- 2.Which action leads to the largest decrease in portfolio risk?
- 3.What is the term for examining a company's financial reports and future potential to assess its worth?
- 4.How does portfolio diversification impact the types of risks involved?
- 5.Which scenario best illustrates the concept of moral hazard?