The appropriate discount rate used in decision tree methodology
A)should be risk-adjusted,and risk may vary by period and decision node.
B)should be risk-adjusted,and risk may not vary by period and decision node.
C)should not be risk-adjusted,and risk may vary by period and decision node.
D)should not be risk-adjusted,and risk may not vary by period and decision node.

Question

Quizplus · Accepted Answer

The appropriate discount rate used in decision tree methodology should be risk-adjusted because risk may vary by period and decision node. The future cash flows at different points in time and decision nodes have different levels of risk, so adjusting the discount rate to reflect this risk is necessary to arrive at an accurate calculation of present value.

The Appropriate Discount Rate Used in Decision Tree Methodology