Assume the expected value of period irsquos cash flow is, Ask an Expert

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Assume the expected value of period i’s cash flow is converted to a certainty equivalent by multiplying by 0.85 for all periods.

Assume rf= 0.06 E(X1) = $161, E(X2) = $238.05

(a) Convert the two expected values to certainty equivalents.

(b) What discount rates should be used for the period 1 and period 2 cash flows?

(c) Compute present value using the risk adjusted rate you found in (b). Also compute the present value using the risk free rate?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92266482

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