CFA Practice Question

There are 233 practice questions for this study session.

CFA Practice Question

An analyst is developing net present value (NPV) profiles for two investment projects. The only difference between the two projects is that Project 1 is expected to receive larger cash flows early in the life of the project, while Project 2 is expected to receive larger cash flows late in the life of the project. The sensitivity of the projects' NPVs to changes in the discount rate is best described as ______.
A. lower for Project 1 than Project 2
B. greater for Project 1 than Project 2
C. equal for the two projects
Explanation: A delay in the receipt of cash flows (as in Project 2) will make a project's net present value more sensitive to changes in the discount rate.

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