A Project Has an Expected Risky Cash Flow of $500

Multiple Choice

A project has an expected risky cash flow of $500 in year 2. The risk-free rate is 4 percent, the expected market rate of return is 14 percent, and the project's beta is 1.20. Calculate the certainty equivalent cash flow for year 2, CEQ₂.

A) $622.04
B) $164.29
C) $401.90
D) $416.13