Hi, could someone explain why higher risk premium/hurdle rates applied to investment decisions show the appetite for risk is lower? I would think the appetite for risk is higher as you are requiring a high level of return for a high level of risk that you take i.e. high appetite for risk ? Thanks.
Hey, I agree with you logic and all study materials that I've seen so far support the higher risk appetite linked with higher risk premium. Why are you questioning the vice versa as being correct? Where can this be found?
Hi there. I think it might be for when you are evaluating the cash flows of the task or project. The higher the discount rate then the lower the NPV. If this series of cash flows was an investment then the higher discount rate would mean that it is worth less. However if using this higher discount rate meant that it was still profitable then the business should undertake the decision.
Hi. If I am a risk averse business I want to ensure that some new project will deliver a very high return, so I set the hurdle rate that new projects need to achieve at a high level, say 20%. If I am a less risk averse business I set the hurdle rate at a lower level, say 10%.
