If the Risk Adjusted Discount Rate Method and the Certainty

question 48

Multiple Choice

If the risk adjusted discount rate method and the certainty equivalent methods are to give the same results,then the certainty equivalent factor (at) must equal (where rf is the risk-free interest rate,and "k" is the risk adjusted cost of capital)

• A)(1 + r_f)^t times (1 + k)^t.
• B)(1 + k)^t divided by (1 + r_f)^t.
• C)(1 + r_f)^t divided by (1 + k)^t.
• D)(1 + k)^t minus (1 + r_f)^t.

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Definitions:

Consumer Price Index

An indicator assessing the mean fluctuation over time in the expenses borne by city dwellers for a designated assortment of consumer products and services.

Inflation Rate

The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling, often expressed as a percentage.

Base Year

A reference year against which economic growth, price levels, and other data are measured over time.

Consumer Price Index

An economic indicator that measures the average change over time in the prices paid by consumers for a basket of goods and services.