Market Risk Management for Revenue-Producing Projects

Market Risk Adjustments

Prev Question Next Question

Question

Market risk in a revenue-producing project can best be adjusted for by

Answers

A. Ignoring it.

B. Adjusting the discount rate downward for increasing risk.

C. Picking a risk factor equal to the average discount rate.

D. Adjusting the discount rate upward for increasing risk.

E. Reducing the NPV by 10 percent for risky projects.

Show Answer

Explanations

Click on the arrows to vote for the correct answer

A. B. C. D. E.

An increase in a project's beta will cause its stock price to decrease unless the increased beta were offset by a higher expected rate of return. Therefore, high-risk investments require higher rates of return, whereas low-risk investments require lower rates of return.

Prev Question Next Question