The Interest Rate That Sets the Present Value of a Project's

question 119

Multiple Choice

The interest rate that sets the present value of a project's cash inflows equal to the present value of the project's cost is called the ____.

• A) present value
• B) discount rate
• C) company cost of capital
• D) payback period
• E) internal rate of return

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Definitions:

Risk-Free Rate

The theoretical rate of return on an investment with zero risk, typically represented by the yield on government securities.

Call Option

An agreement that allows the purchaser the option, without being required, to buy a specific asset like a stock, bond, or commodity, at an agreed-upon price within a set timeframe.

Exercise Price

The specified price at which the option holder can buy (call option) or sell (put option) the underlying asset.

Call Option Contracts

Financial agreements giving the buyer the right but not the obligation to purchase an asset at a specified price within a certain period.