Question: Can I get some advice on this question please? A project will require $30,000 in State A or $16,000 in State B (50% probability that
Can I get some advice on this question please?
A project will require $30,000 in State A or $16,000 in State B (50% probability that either state occurs) and the cash flow can be discounted at 15% while the risk free rate is 8%. How do you calculate the present value?
I know how to do just use the discount rate: PV= (1/(1+15%))*(.5*30,000+.5*16,000) = 20,000
I'm unsure what to do with the risk free rate. Do you need to somehow use risk neutral probabilities?
Thanks
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