Question: Look back at project A in Section 9.6. Now assume that a. Expected cash flow is $150 per year for five years. b. The risk-free

Look back at project A in Section 9.6. Now assume that

a. Expected cash flow is $150 per year for five years.

b. The risk-free rate of interest is 5 percent.

c. The market risk premium is 6 percent.

d. The estimated beta is 1.2. Recalculate the certainty-equivalent cash flows, and show that the ratio of these certainty-equivalent cash flows to the risky cash flows declines by a constant proportion each year.

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