CFA Level 1 Exam: Most Correct Statement

Most Correct Statement

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Question

Which of the following statements is most correct?

Answers

A. When comparing two projects, the project with the higher IRR will also have the higher MIRR.

B. Both IRR and MIRR can produce multiple rates of return.

C. The modified internal rate of return (MIRR) of a project increases as the cost of capital increases.

D. All of these statements are correct.

E. The internal rate of return (IRR) of a project increases as the cost of capital increases. C

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Explanations

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A. B. C. D. E.

Explanation

The MIRR is dependent on the cost of capital. As the cost of capital increases, so does the terminal value. Because the MIRR is the rate, which equates the PV with the terminal value, the MIRR increases as the terminal value increases.

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