The Risk-Free Rate Is Not

question 119

Multiple Choice

The risk-free rate is not:

• A) usually approximated by interest rates on U.S. government debt.
• B) the interest rate at which one would lend if there were no risk of default.
• C) lower than any other interest rate.
• D) usually approximated by interest rate on corporation debts.

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Definitions:

Net Operating Cash Flows

The amount of cash generated by a company's normal business operations after paying operating expenses and taxes.

Present Value

The current worth of a future sum of money or stream of cash flows, given a specified rate of return.

Net Present Value

A financial metric used to evaluate the profitability of an investment or project, calculated by subtracting the initial investment from the present value of future cash flows.

Internal Rate Of Return

The discount rate at which the net present value of an investment project is zero; the rate of return promised by a project over its useful life.