One Can Determine the Present Value of Risky Cash Flows

question 48

Multiple Choice

One can determine the present value of risky cash flows by estimating

• A)the expected cash flows and then discount these at a rate that is consistent with the risk of the cash flows.
• B)the certainty-equivalent cash flows and then discount these at the risk-free rate.
• C)the expected cash flows and then discount these at a rate that is consistent with the risk of the cash flows and estimating the certainty-equivalent cash flows and then discount these at the risk-free rate.
• D)the expected cash flows and then discount these at the risk-free rate.

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