Risk Adjusted Discount Rate (RADR) Quiz
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Questions and Answers

What is the Risk-Adjusted Discount Rate (RADR) composed of?

  • A single component
  • Three components
  • The sum of two components (correct)
  • Many components
  • What does RADR stand for?

  • Risk Associated Discount Rate
  • Rate And Discount Risk
  • Risk Adjusted Discount Rate (correct)
  • Risk And Discount Rate
  • What is the university mentioned in the passage?

  • University of Applied Sciences and Technology
  • University of Technology
  • University of Technology and Science
  • University of Technology and Applied Sciences (correct)
  • What is the main purpose of the Risk-Adjusted Discount Rate (RADR)?

    <p>To account for the risk associated with a project or investment</p> Signup and view all the answers

    What can be said about the RADR formula?

    <p>It is a formula with only two components</p> Signup and view all the answers

    What are the two components of risk?

    <p>Risk-free rate and risk premium</p> Signup and view all the answers

    What is the main advantage of using a risk-adjusted discount rate?

    <p>It is appealing to risk-averse investors and helps to reduce uncertainty</p> Signup and view all the answers

    What is a disadvantage of using a risk-adjusted discount rate?

    <p>Getting an accurate risk premium is challenging</p> Signup and view all the answers

    What is assumed about investors when using a risk-adjusted discount rate?

    <p>They are risk-averse</p> Signup and view all the answers

    What is one of the types of risk that the risk-adjusted discount rate helps to overcome?

    <p>Credit risk</p> Signup and view all the answers

    What is the formula for Risk Adjusted Discount Rate (RADR)?

    <p>Risk free rate + Risk Premium</p> Signup and view all the answers

    What is the formula for Risk Premium under the Capital Asset Pricing Model (CAPM)?

    <p>(Market rate of return - risk free rate) * beta of the project</p> Signup and view all the answers

    What is the purpose of the Risk Adjusted Discount Rate (RADR) in capital budgeting?

    <p>To adjust the discount rate to reflect the risk of an investment</p> Signup and view all the answers

    What is the relationship between the Risk Premium and the beta of the project?

    <p>The Risk Premium is directly proportional to the beta of the project</p> Signup and view all the answers

    What is the implication of a high beta of the project on the Risk Premium?

    <p>The Risk Premium will be higher</p> Signup and view all the answers

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