One can determine the present value of risky cash flows by estimating
A) the expected cash flows and then discount these at a rate that is consistent with the risk of the cash flows.
B) the certainty-equivalent cash flows and then discount these at the risk-free rate.
C) the expected cash flows and then discount these at a rate that is consistent with the risk of the cash flows and estimating the certainty-equivalent cash flows and then discount these at the risk-free rate.
D) the expected cash flows and then discount these at the risk-free rate.
Correct Answer:
Verified
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