Cash flows with different risk profiles would likely have: CHOOSE ONE: A Similar causes. B Been...
Cash flows with different risk profiles would likely have:
CHOOSE ONE:
|
A |
Similar causes. |
|
B |
Been derived in similar currencies. |
|
C |
Been derived in different countries. |
|
D |
Different discount rates. |
Homework Answers
When risk is higher then to account for higher risk, greater discount rate is used. When discount rate increases then the present value of future cash flows falls and vice versa.
When risk profile is different for cash flows, then appropriate discount rate needs to be used for each cash flow stream.
A. Incorrect. Similar causes cannot be expected from cash flows of different risk profiles.
B. Incorrect. Currency is not important here. Currency may be same or different.
C. Incorrect. Currency is not important here. Currency may be same or different.
D. Correct. When risk profiles are different, then discount rate will vary.
Thus, correct answer is D.
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