Healthcare Finance #5

A primary determinant of the opportunity cost rate is the riskiness of the cash flows being discounted. Select one: a. True b. False

a. True

In a portfolio of two different investments, the overall riskiness of the portfolio, at least in theory, could be less than the risk inherent in either of the individual assets if they were held in isolation. Select one: a. True b. False

a. True Correct

If a bank pays quarterly compounding on its savings accounts, the ending amount after one year on a $1,000 deposit will be less than if the bank paid annual compounding. Select one: a. True b. False

b. False

If a bank pays quarterly compounding on its savings accounts, the stated (nominal) rate will be greater than the effective annual rate. Select one: a. True b. False

b. False

In the real world, as randomly chosen investments are added to a portfolio, the riskiness of the portfolio decreases. If enough investments are added, all risk can be eliminated. Select one: a. True b. False

b. False

Which of the following statements concerning financial risk is false? Select one: a. Generically, financial risk is related to the probability of a return that is less than expected. b. If the returns on two investments move in unison (are perfectly positively correlated), combining the two into a portfolio will lower risk. c. If the returns on two investments move in unison (are perfectly positively correlated), combining the two into a portfolio will not affect risk. d. In the real world, it is not possible to create a riskless portfolio because all investment returns, to a greater or lesser extent, move with the overall economy. e. Assume you know for certain that an investment will return negative 10 percent. (In other words, the probability of a negative 10 percent return is 100 percent.) Although the expected return is negative, the investment is riskless.

b. If the returns on two investments move in unison (are perfectly positively correlated), combining the two into a portfolio will lower risk.

If an organization's managers are risk averse, they will always (and only) prefer an investment opportunity with lower risk to an investment opportunity with higher risk. Select one: a. True b.False

b.False

Oakdale Community Hospital is considering building an ambulatory surgery center. Which of the following opportunity cost rates would be most appropriate for discounting the project's future cash flows? Select one: a. The expected rate of return on a bank CD b. The expected rate of return on a municipal bond c.The expected rate of return on the stock of SurgiCare Corporation, a for-profit company that operates a large number of freestanding ambulatory surgery centers d. The expected rate of return on the stock of Skilled Healthcare Group, a for-profit company that operates a large number of nursing homes and assisted living centers e. The expected rate of return on Medcath Corporation, a for-profit company that operates a large number of cardiac specialty hospitals

c.The expected rate of return on the stock of SurgiCare Corporation, a for-profit company that operates a large number of freestanding ambulatory surgery centers

The most important determinant of an investment's portfolio risk is which of the following? Select one: a. The standard deviation of the investment's return distribution b. The variance of the investment's return distribution c. The size of the investment d. The correlation of the investment's returns with the returns of other investments in the portfolio e.The risk-free rate of return

d. The correlation of the investment's returns with the returns of other investments in the portfolio

Which of the following statements about opportunity costs is false? Select one: a. The opportunity cost rate to be applied to any investment is the rate of return that could be earned on alternative investments of similar risk. b.In general, higher-risk investments should have higher opportunity costs than lower-risk investments. c.Opportunity cost rates are normally obtained by examining the returns on securities investments. d. The opportunity cost rate typically is applied in discounting situations (as opposed to compounding). e. Say you just inherited $10,000. Because this money cost you nothing, it has an opportunity cost rate of zero.

e. Say you just inherited $10,000. Because this money cost you nothing, it has an opportunity cost rate of zero.