A surprising number of firms use firm risk rather than project risk in evaluating new investments (Graham and Harvey, 2001).Links to an external site. According to Krger et al. (2015),Links to an external site. if managers use a single discount rate within firms, we expect that conglomerates ________ relatively safe divisions and ________ relatively risky divisions.

underreact to; overreact to

underinvest in; overinvest in

overinvest in; underinvest in

overreact to; underreact to