Assume the expected value of period is cash flow is converted to a certainty equivalent by multiplying by 0.85 for all periods.

Assume rf= 0.06 E(X1) = $161, E(X2) = $238.05

(a) Convert the two expected values to certainty equivalents.

(b) What discount rates should be used for the period 1 and period 2 cash flows?

(c) Compute present value using the risk adjusted rate you found in (b). Also compute the present value using the risk free rate