Question

The story in the text and discussed in class of the CFO who used shareholder money on a project that had a very small chance of returning a large sum and a very large chance of returning zero was used to illustrate what course concept?

	a.	That the risk of a project can change when it is combined with other projects
	b.	That dividends do not necessarily need to be paid, even for profitable companies
	c.	That despite the teaching of modern portfolio theory, most investors choose to hold one stock portfolios
	d.	That the capital asset pricing model does not hold in the real world
	e.	That firms with financial leverage can better boost EPS

Answer 1

The answer is:

c. That despite the teaching of modern portfolio theory, most investors choose to hold one stock portfolios

Modern porfolio theory states that it is possible to construct an optimal portfolio by investing in more than one stock to level the risks and rewards.

But despite such theory, CFO used money to invest in only one single project.