The riskier a project is, the smaller its certainty equivalent will be.

Name: The riskier a project is, the smaller its certainty equivalent will be.
Brand: Quizplus
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Question

Quizplus · Accepted Answer

The certainty equivalent is a guaranteed return that someone would accept now instead of taking a chance on a higher, but uncertain, return later. Riskier projects are less certain, thus their certainty equivalent, or the risk-free value an investor would accept instead of taking a chance on the project, would be smaller.

The Riskier a Project Is, the Smaller Its Certainty Equivalent