The Discount Rate Used in Calculating the Certainty Equivalent Net

question 10

Multiple Choice

The discount rate used in calculating the certainty equivalent net present value is the ______.

• A) risk-adjusted discount rate
• B) cost of capital
• C) risk-free rate
• D) cost of equity capital

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Definitions:

Roth IRA

A retirement savings account that allows your money to grow tax-free, with qualified withdrawals in retirement being tax-free as well.

Deductible Contribution

An investment or payment that can be subtracted from one's gross income to reduce taxable income, often related to retirement accounts or charitable donations.

Tax-Advantaged Status

Financial accounts or investments that receive favorable tax treatment, such as deductions or tax-free growth.

401(k) Plan

A retirement savings plan sponsored by an employer, allowing employees to save and invest a portion of their paycheck before taxes are taken out.