The theoretical basis from which the concept of risk-adjusted discount rates is derived is
A) the capital asset pricing model.
B) simulation theory.
C) the basic cost of money.
D) the Gordon model.

Question

Quizplus · Accepted Answer

The theoretical basis from which the concept of risk-adjusted discount rates is derived is the capital asset pricing model (CAPM). The CAPM is a widely used theory in finance to determine the expected return on an investment. It takes into account the risk-free rate of return, the expected return of the market as a whole, and the beta coefficient of the investment itself. These factors are used to derive a risk-adjusted discount rate, which is used to calculate the present value of future cash flows.

The Theoretical Basis from Which the Concept of Risk-Adjusted Discount