A project which has a coefficient of variation greater than zero will have a risk-adjusted discount rate
A) less than the risk-free rate of return.
B) greater than the risk-free rate of return.
C) equal to the risk-free rate of return.
D) not related to the risk-free rate of return.

Question

Quizplus · Accepted Answer

A coefficient of variation greater than zero implies that the project has variability/risk, therefore a risk-adjusted discount rate (RADR) is needed to calculate its present value. The RADR is usually greater than the risk-free rate of return to compensate for the additional risk associated with the project. Therefore, choice B is the best answer.

A Project Which Has a Coefficient of Variation Greater Than