Generally, the higher the coefficient of variation a project has, the higher the discount rate it should be assigned.
A higher coefficient of variation denotes greater risk, so investors will require a higher rate of return—thus (all else being equal), a "risk-adjusted" rate.

Question

Generally, the higher the coefficient of variation a project has, the higher the discount rate it should be assigned.
A higher coefficient of variation denotes greater risk, so investors will require a higher rate of return&#8212;thus (all else being equal), a "risk-adjusted" rate.

Quizplus · Accepted Answer

The statement is true. A higher coefficient of variation indicates greater risk, and investors will demand a higher rate of return to compensate for that risk. Therefore, a "risk-adjusted" rate should be applied to the project, which is higher than a regular rate.

Generally, the Higher the Coefficient of Variation a Project Has