- CFA Exams
- CFA Level I Exam
- Study Session 3. Quantitative Methods (2)
- Reading 9. Excerpt from Probabilistic Approaches: Scenario Analysis, Decision Trees, and Simulations
- Subject 3. An overall assessment of probabilistic risk assessment approaches

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**CFA Practice Question**

If the approach of simulation is used as a substitute for risk-adjusted value, ______ should be used as the discount rate.

A. the risk-free rate

B. a risk-adjusted discount rate

C. the market rate

**Explanation:**The cash flows should be discounted back at a risk-free rate to arrive at value.

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**User Contributed Comments**
1

User |
Comment |
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chriswwu |
It should be the simulated risk-free rate, not the current market risk-free rate (i.e., implied by the yield curve at time 0), right? |