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Hello John,
In a plain vanilla swap, the Discount Factor will always be based on interest rates, or there can be another rate like risk adjusted rate for project’s CF’s or inflation rates?It will be based on interest rates (unless, in the exam, the question specifically says to use a different rate, which is unlikely).
Why is that so? If the cost of capital related to a project is given and the project’s Cash flows are being swapped, then why not the project’s cost of capital?
In that case, inflation rates may be used as well? (purchasing power parity)
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