American_Bankers_Association
CTFA · Question #61
When using a probability tree approach, we discount the various cash flows to their present value at:
The correct answer is C. The risk-free rate. See the full explanation below for the reasoning.
Investment Management
Question
When using a probability tree approach, we discount the various cash flows to their present value at:
Options
- AThe firm's weighted-average cost of capital
- BThe project's required rate of return
- CThe risk-free rate
- DThe after-tax cost of the firm's long-term debt
How the community answered
(67 responses)- A12% (8)
- B3% (2)
- C79% (53)
- D6% (4)
Topics
#probability tree#risk-free rate#discount rate#capital budgeting
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