What are the certainty equivalents of the cash flows what, Financial Management

What are the certainty equivalents of the cash flows what

• Suppose our investment project has two risky cash flows occurring at times 1 and 2

• The expected cash flows are E[C1] = $110 and E[C2] = 121 and the cash flow risk grow geometrically through time

• The risk-free rate is 0.05 per year and the appropriate risk-adjusted discount rate is 0.1

• What is the present value using the risk-adjusted discount rate method?

• What is the certainty equivalent factor?

• What are the certainty equivalents of the cash flows?

• What is the present value using the certainty equivalent method?

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