The Relative Risk of a Proposed Project Is Best Accounted

question 63

Multiple Choice

The relative risk of a proposed project is best accounted for by which of the following procedures?

• A) Adjusting the discount rate upward if the project is judged to have above-average risk.
• B) Adjusting the discount rate upward if the project is judged to have below-average risk.
• C) Reducing the NPV by 10% for risky projects.
• D) Picking a risk factor equal to the average discount rate.
• E) Ignoring risk because project risk cannot be measured accurately.

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Definitions:

Neurons

Specialized cells within the nervous system that transmit information through electrical and chemical signals.

Visual Information

Data or knowledge that can be received and processed visually, often via illustrations, graphs, images, or video.

Overconfidence Effect

A mental distortion in which a person's belief in their own decision-making abilities exceeds the actual precision of those decisions.

Behavioral Economics

Investigating the influence of psychological, cognitive, emotional, cultural, and social factors on individuals' and institutions' economic decision-making falls within this segment of economics.