As Per the Risk-Free Scenario Method

question 2

Multiple Choice

As per the risk-free scenario method,

• A)the certainty equivalent cash flow is assumed to be the expected cash flow in situations where the tangency portfolio return equals the risk-free rate plus the market risk premium.
• B)the certainty equivalent cash flow is assumed to be the expected cash flow in situations where the tangency portfolio return equals the risk-free rate.
• C)the certainty equivalent cash flow is assumed to be the expected cash flow in situations where the optimal portfolio return equals the risk-free rate.
• D)the certainty equivalent cash flow is assumed to be the expected cash flow in situations where the tangency portfolio return equals the market risk premium.

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Definitions:

Identity Equation

An equation that is true for all values of the variable, typically used to express fundamental algebraic properties.

Solve

The process of finding an answer or solution, especially in mathematics by determining the value of variables.

Possible

That which can be done or achieved, within the realm of reality or probability.

Linear Equation

An equation between two variables that produces a straight line when plotted on a graph.