The certainty equivalent factors used in capital budgeting analysis are equal to the ____ divided by ____.
A) certain return; risky return
B) risky return; certain return
C) certain return; beta
D) beta, risky return

Question

Quizplus · Accepted Answer

The certainty equivalent factor is the amount of certain return that an investment must generate in order for investors to be indifferent between that return and the risky return being considered. Therefore, the certainty equivalent factor is equal to the certain return (what investors would be guaranteed to receive) divided by the risky return (what investors may actually receive).

The Certainty Equivalent Factors Used in Capital Budgeting Analysis Are