In Risk-Adjusted Discount Rate method, the discount rate to be used is the normal discount rate as ____________ by the risk factor.

Increased

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Decreased

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Unchanged

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None of the above

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Solution

The correct option is A Increased
The use of risk adjusted discount rate is based on the concept that investors demands higher returns from the risky projects. The required return of return on any investment should include compensation for delaying consumption equal to risk free rate of return, plus compensation for any kind of risk taken on.

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