Which approach incorporates risk by adjusting the cash flows rather than the discount rate?
A)The RADR approach.
B)The Capital equivalent approach.
C)The certainty approach.
D)The certainty equivalent approach.

Question

Quizplus · Accepted Answer

The certainty equivalent approach incorporates risk by adjusting the expected cash flows rather than the discount rate. It calculates the certain amount of cash flow that an investor would accept over a riskier cash flow stream. The better the terms of the cash flow stream, the smaller the adjustment would be. Therefore, it is the best choice for the given question.

Which Approach Incorporates Risk by Adjusting the Cash Flows Rather