The Appropriate Discount Rate, R, Is the Return That the Market

question 47

Multiple Choice

The appropriate discount rate, r, is the return that the market or the consensus of investors requires on the asset. A convenient (but approximate) expression for the appropriate discount rate is this: r = RR + IP + DP + MP + LP + EPP where ________.

• A) IP= the real rate of interest, which is the reward for not consuming and for lending to other users.
• B) MP = the maturity risk premium, which is the reward for taking on the risk of default in the case of a loan or bond or the risk of loss of principal for other assets.
• C) LP = the liquidity premium, which is the reward for not consuming and for lending to other users.
• D) EP= the exchange-rate risk premium, which is the reward for investing in an asset that is not denominated in the investor's home currency.

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