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The risk-adjusted discount rate has two components: compensation for bearing the risk associated uncertain payoffs and foregone interest.
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- Describe the process of using the risk-adjusted discount rateto calculate the net present value?Define the term Risk-Adjusted Discount Rate Approach?Which one of the following statements is correct? Group of answer choices The lower the average return, the greater the risk premium. The greater the volatility of returns, the greater the risk premium. The lower the volatility of returns, the greater the risk premium. The risk premium is not affected by the volatility of returns. The risk premium is unrelated to the average rate of return.
- Present value is based on the concept of: a. discounting. b. duration. c. systematic risk. d. compounding.Explain how the concept of comparable risk is incorporated into the discount rate.Which of the following statements is true for compensation of risk? a. Higher the risk, lower is the return b. Lower the risk, higher is the return c. Higher the risk, higher is the return d. Higher the risk, zero is the return
- The risk-adjusted discount rate reduces investment. True or false?What is the difference between the discount rate used for net present value and the internal rate of return methods?An investor's required rate of return is equal to: the risk premium the investor feels is necessary to compensate for the riskiness of the asset. the risk-free rate of interest plus a risk premium. the risk-free rate of interest. the risk-free rate of interest plus an inflation premium.
