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.

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.
References in periodicals archive ?
Conceptual Problems in the Use of Risk-adjusted Discount Rates. The Journal of Finance, 21, p.
The difficulty of considering continuous processes, as well as the problem of determining the premium for risk, discourage common use of the risk-adjusted discount rate method.
Table 2 shows the risk-adjusted discount rates for various input values.
(2000) established a risk-adjusted discount rate for a supply chain network model, but not for a specific facility.
(15) The proposition that risk-adjusted discount rates and certainty equivalents yield identical net present values is shown in Stapleton (1971).
Unrealistic risk-adjusted discount rates serve only to place doubt on the real meaning of the net present value (NPV).
This further allows the use of appropriately risk-adjusted discount rates for each class of cash flows to be used, leading to a more precise and accurate valuation framework.
Schachter, 1989, "The Investment Decision: Estimation Risk and Risk-Adjusted Discount Rates," Financial Management (Winter), 13-22.
Cummins (1988b) develops risk-adjusted discount rates for risky insurance policies, i.e., policies issued by firms that can become bankrupt.
Financial theorists agree that using a correct risk-adjusted discount rate is needed to analyze a company's potential investments and evaluate overall or divisional performance.
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