The market discount rate primarily accounts for which of the following components?

The market discount rate is a critical concept in finance that reflects the time value of money and the opportunity cost of investing in one asset over another. The correct choice encompasses the comprehensive factors that are considered when calculating the discount rate.

The market discount rate includes the risk-free rate of return, which is the return expected from an investment that is considered free of risk, such as government bonds. However, it does not stop there; it also incorporates a risk premium that compensates investors for taking on additional risk beyond that of a risk-free investment. This risk premium accounts for uncertainties related to specific investments or market volatility.

Additionally, the constant growth rate aspect refers to the expected growth in cash flows from the investment over time. This factor is particularly relevant for equity investments where future cash flows are expected to increase steadily. By including both the risk-free rate, the risk premium, and the growth rate, this option captures the full scope of elements that contribute to the market discount rate, making it the most comprehensive and correct choice.

The other options either isolate components of the discount rate or fail to address the entire framework necessary for accurately determining the market discount rate used in valuing investments.