In present value terms, a risky future dollar is worth compared to a risk-free future dollar because of the .
A)less; risk premium
B)more; risk premium
C)less; inflation rate
D)the same; inflation rate

Question

Quizplus · Accepted Answer

A risky future dollar is worth less than a risk-free future dollar because it requires a premium for assuming the risk. The risk premium compensates investors for the uncertainty and potential for loss associated with the investment. Therefore, the present value of a risky future dollar will be lower than that of a risk-free future dollar.

In Present Value Terms, a Risky Future Dollar Is Worth