The risk adjusted discount rate
A)is the sum of the risk-free rate and the risk premium.
B)includes risk in the denominator of the present value calculation.
C)includes risk in the numerator of the present value calculation.
D)All of the above

Question

Quizplus · Accepted Answer

The risk-adjusted discount rate incorporates all of the mentioned elements: it is calculated by adding a risk premium to the risk-free rate (A), and it affects the present value calculation by adjusting the discount rate used in the denominator, indirectly reflecting risk considerations in the valuation process (B and C).

The Risk Adjusted Discount Rate