Final answer:
The discount rate is determined by adding the risk-free market rate to a "spread" that accounts for the rising market premium for higher issuer credit risk. This statement is true.
Step-by-step explanation:
The statement is true. The discount rate is determined by adding the risk-free market rate to a "spread" that accounts for the rising market premium for higher issuer credit risk. The risk-free rate represents the return on investment that carries no risk, such as government bonds. The spread accounts for the additional compensation investors require for taking on higher credit risk from issuers. For example, if the risk-free rate is 5% and the spread is 3%, the overall discount rate for a particular issuer would be 8%.