The subjective approach to determining risk-adjusted discount rates _____.
A) uses the risk-free rate for average-risk projects
B) explicitly considers the probability distribution of a project's cash flows
C) always leads to the correct investment decisions
D) groups projects into risk classes and evaluates all projects in a particular risk class at the same risk-adjusted discount rate

Question

Quizplus · Accepted Answer

The subjective approach to determining risk-adjusted discount rates often involves grouping projects into different risk classes and then applying the same risk-adjusted discount rate to all projects within a particular class. This method acknowledges that not all projects have the same level of risk but simplifies the evaluation process by treating all projects within a given category similarly.

The Subjective Approach to Determining Risk-Adjusted Discount Rates _____