1. All of the following concerning risk aversion are true except that:

Multiple Choice

• risk is only measured in terms of loss.

• investors and managers require a higher return for higher risk.

• investors and managers are generally risk averse.

• people generally prefer certainty over uncertainty.

2. Which of the following is the correct relationship (choose the best answer)?

Multiple Choice

• high risk, high required return

• high risk, high return

• low risk, high return

• high risk, low return

3.

The main difficulty in the capital budgeting process is:

Multiple Choice

• determining where we want to be on the risk-return scale

• determining the appropriate discount rate

• finding viable investment opportunities

• maximizing shareholder value