CONCEPTUAL PROBLEMS IN THE USE OF RISK-ADJUSTED DISCOUNT RATES.

The article focuses on the use of risk-adjusted discount rates and the relationship between the effects that risk and time have on present value. It presents mathematical models to prove the relationship of time and risk with present value and examines the certainty equivalent and riskless rate of interest to help create a formula for the present value of the uncertain stream. It states that the rate at which expected income is realized over time is dependent on how long it is expected to take uncertainty to be resolved, and mentions that if uncertainty is expected to be resolved at a constant rate over time, the required rate of return will accurately predict the rate income is expected to be realized.