Questions # 1
Consider a three-year project that has a two-year payback period
a.	Will the project?s NPV be positive? 
b.	Will the project?s IRR be higher than the cost of capital?
c.	Should the project be accepted.
Question # 2 
What is the typical relationship between the standard deviation of an
individual common stock and the standard deviation of a diversified
portfolio of common stocks?
a. Individual stock?s standard deviation will be higher.
b. Individual stock?s standard deviation will be lower.
c. They will be equal.
d.Individual stock?s standard deviation will be lower in nominal terms
but higher in real terms.
e. None of the Above
Question # 3 
Which of the following is / are true regarding beta and the CAPM?
a.the beta of the riskfree asset (the Treasury bill) is negative
b.the beta of the market portfolio (S&P500) varies from year to year
c.the expected return of any risky asset is less than the expected
return of the riskfree asset
d.all of the above
e.none of the

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Clarification of Question by finspring-ga on 05 Apr 2005 19:36 PDT

I need these before April 6 at noon

1.  The answer to all parts of the question is that we do not know
with the information provided.  Simply because the project achieves
payback tells us nothing about whether it generates a net positive
return
or that the return is higher than the cost of capital.  Payback does
not include the time value of money.  Therefore, we do not know if we
should accept the project or not.

2. e.  None of the Above.  "The beta of an average risk firm in the
stock market is 1.00."  Therefore, many firms have a standard
deviation that is higher than the market and many firms have a
standard deviation that is lower than the market. Source: "The Cost of
Equity" ValuePro http://www.valuepro.net/approach/equity/equity.shtml

3. e.  None of the above.  The beta of the risk-free asset will always
be 0.  Source: "Time Value of Money" by George W. Gallinger, Arizona
State University http://64.233.187.104/search?q=cache:Vb89qlpoNrMJ:www.public.asu.edu/~bac524/02_tvm_riskreturn.ppt+beta+of+risk-free+assets&hl=en.
 The beta of the market portfolio is always 1.0.  Risky assets have
expected returns that are always higher than the risk-free asset to
compensate for their risk.

Your tips are appreciated.

Sincerely,

Wonko

#2.  Im certain that the standard deviation for an individual stock,
TYPICALLY, is higher than that of a diversified portfolio.  After all,
the idea of a portfolio is to diversify away risk,ie, standard
deviation.