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    Question

    The certainty equivalent is

    _______.
    A equivalent to NPV Correct Answer Incorrect Answer
    B a guaranteed return from an investment after adjusting for a risk Correct Answer Incorrect Answer
    C an important component in Decision Tree Analysis Correct Answer Incorrect Answer
    D a return that is expected over the lifetime of a project Correct Answer Incorrect Answer

    Solution

    The certainty equivalent is a guaranteed return from an investment after adjusting for risk. The certainty equivalent is a financial concept used to evaluate and compare risky investment opportunities with certain or risk-free investments. It represents the guaranteed return or cash flow that an investor would accept instead of taking on the risk associated with a particular investment. By adjusting for the level of risk, the certainty equivalent allows investors to compare different investment options on an equal footing and make informed decisions based on their risk appetite and return expectations.

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