In Theory, the Risk-Free Rate Is More Appropriate for the NPV

question 18

Multiple Choice

In theory, the risk-free rate is more appropriate for the NPV calculation in the certainty equivalent approach since:

• A)it is assumed that there is no business-specific risk associated with the projects.
• B)certainty equivalent factors cannot take negative values.
• C)certainty equivalents imply zero risk.
• D)certainty equivalents consider unsystematic risk only.

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