Valuation Based on Decision Tree Analysis (DTA )Should Discount Both

question 22

True/False

Valuation based on decision tree analysis (DTA )should discount both components of the contingent cash flows using the risk-free rate.

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Definitions:

Investment

An investment is the allocation of money or capital to purchase financial instruments or other assets to gain profitable returns as interest, income, or appreciation of the value of the instrument.

Accumulate

To accumulate is to gather or collect something over a period of time, often used in financial contexts to describe the building up of interest, investments, or assets.

Compounded Quarterly

A method of calculating interest where the interest earned each quarter is added to the principal, thereby increasing the amount on which subsequent interest is calculated.

Interest Rate

The percentage of a loan amount that is applied as interest for the borrower, usually shown as an annual rate of the remaining loan balance.