CFA Practice Question

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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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