Risk Measures
Net Present Value (NPV) is calculated as:
NPV = PV of cash flows - Initial cost. Positive NPV = good investment.
Complete Analysis & Legal Rationale
NPV equals the present value of all future cash flows (discounted at the required rate of return) minus the initial investment cost. A positive NPV indicates the investment exceeds the required return.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
NPV does not subtract present value from future value.
Matches the verified teaching point in the explanation.
This describes payback period, not NPV.
NPV uses discounting, not simple division.
Official Standard: Outline-level citation pending rule-specific upgrade. Verify against current FINRA Series 7 outline.