An Individual Is Said to Risk Averse If His/her Certainty

question 46

Multiple Choice

An individual is said to risk averse if his/her certainty equivalent for a risky prospect is:

• A) always negative.
• B) equal to its expected value.
• C) equal to the average probability of the outcomes.
• D) always zero.
• E) less than its expected value.

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Definitions:

Discount Rate

The interest rate used in discounted cash flow analysis to calculate the present value of future cash flows.

Net Present Value

The variance between cash inflows' and outflows' current values during a certain period.

Discount Factor(s)

A numerical factor used to calculate the present value of future cash flows, reflecting the time value of money.

Straight-Line Depreciation

A method of allocating the cost of a tangible asset over its useful life in equal installments, reflecting the asset’s gradual decrease in value.