Explain Why Analysts and Investors Use Risk-Adjusted Expected Rates of Return

question 8

Essay

Explain why analysts and investors use risk-adjusted expected rates of return as discount rates in valuation.Why do risk-adjusted expected rates of return increase with risk?

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Definitions:

Volley Principle

The volley principle is a theory of hearing that suggests groups of auditory neurons can provide a higher frequency response by firing in succession, allowing for the perception of sounds higher than their individual maximum firing rates.

Reflected Sounds

Sounds that are echoed or bounced off surfaces, altering the perception of the sound source.

Absolute Pitch

The ability to identify or reproduce a musical note without the need for a reference tone.

Intermediate-Frequency

A frequency range that lies between the high frequency and low frequency bands, often used in radio frequency applications.