In Theory, the Risk-Free Rate Is More Appropriate for the NPV

question 18

Multiple Choice

In theory, the risk-free rate is more appropriate for the NPV calculation in the certainty equivalent approach since:

• A)it is assumed that there is no business-specific risk associated with the projects.
• B)certainty equivalent factors cannot take negative values.
• C)certainty equivalents imply zero risk.
• D)certainty equivalents consider unsystematic risk only.

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Definitions:

Herbert Benson

A physician and researcher known for his work on the relaxation response, a physiological state of deep rest that changes the physical and emotional responses to stress.

Meditation

A practice of focused attention or contemplation to achieve a mentally clear and emotionally calm state.

Stress Effects

The physical, psychological, and emotional responses or changes resulting from the pressures or demands on an individual.

Relaxation

Relaxation refers to the process or state of reducing tension and stress, resulting in a sense of increased well-being.