Risk-adjusted discount rate

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Risk-adjusted discount rate

The rate established by adding a expected risk premium to the risk-free rate in order to determine the present value of a risky investment.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Risk-Adjusted Discount Rate

The discount rate calculated by adding a risk premium to the risk-free rate of return. This is used to calculate the rate of return on a risky investment.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
References in periodicals archive ?
In fact, we would use the same approach to estimating risk premiums that we employ while computing risk adjusted discount rates but we would use the premiums to estimate certainty equivalents instead.
Of the approaches for adjusting for risk in discounted cash flow valuation, the most common one is the risk adjusted discount rate approach, where we use higher discount rates to discount expected cash flows when valuing riskier assets, and lower discount rates when valuing safer assets.
= (1 + Risk adjusted discount rate)/(1 + Risk-free rate) - 1
2.3.5 Risk adjusted discount rate or certainty equivalent cash flow