Which of the Following Components Is Not Typically Included in the Rate

question 8

Multiple Choice

Which of the following components is not typically included in the rate on short-term U.S. treasuries?

• A) liquidity premium
• B) default risk premium
• C) market risk premium
• D) b and c
• E) a, b, and c

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Definitions:

NPV Profiles

NPV profiles are graphical representations that show the relationship between a project’s net present value and the discount rate applied to its cash flows.

Cash Flows

The net amount of cash being transferred into and out of a business, considered essential for assessing its financial health.

Cost of Capital

The cost of capital is the rate of return that a company must earn on its investment projects to maintain its market value and attract funds.

Crossover Rate

The discount rate at which two projects have the same net present value (NPV), used in capital budgeting.