Question

When using time-value equations to analyze financial projects, analysts commonly model market risks (or industry risks)...

When using time-value equations to analyze financial projects, analysts commonly model market risks (or industry risks) in which of the following?

The discount rate.

The logs of both sides of the time-value equations.

An additional investment of Treasury securities.

The project’s future cash flows.

Contractually-specified cash flows.

An error term.

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Answer #1

correct- the discount rate is dependent on the rate of return of investors, inflation will affects the expected rate of return. and hence the discount rate will vary based on the market changes.

Logs of both sides is no relevance for analysing the market risks

Additional investment in treasury bonds will not have a risk because of the fixed repayment guaranteed by the government

project future cash flows are customer specific and is dependent on the customer not on market

Contractually specified amounts can also be chaged in later point based on mutual dialogue

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