Following question no 99, if you use a constant risk-adjusted discount rate, what is the correct value of the certainty equivalent cash flow in year 1?
We are going to use previous two questions (99, 100) to use values Cashflow_1(cf_1), and interest rate(r) in this question.
Since we have got values of cf_1, and r in previous two question, we are going to use these values find new cash flow of the year 1.
Please use the following steps:
def certainty_equivalent_cash_flow_in_year_1(cf_1, r, rf):
CECF_1= ((cf_1/(1+r))*(1+rf))
where,
CECF = certainty equivalent cash flow in year 1 cf_1 = cash flow r = interest rate rf = risk free interest rate
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