Risk-Adjusted Discount Rate (RADR) is sum total of two components. And these components are the risk-free rate and the risk premium. To know more about it, click on the link given below: https://efinancemanagement.com/investment-decisions/risk-adjusted-discount-rate

1. By:-
eFinanceManagement.com
https://efinancemanagement.com/investment-decisions/risk-adjusted-discount-rate
Risk Adjusted Discount Rate

2. 1. Introduction
2. Use
3. Formula
4. Advantages
5. Disadvantages
6. Reference
Content

3. Risk-Adjusted Discount Rate (RADR) is sum total of two components. And these components are the risk-free rate
and the risk premium. RADR is the return that investor expects for taking a higher risk.
Introduction

4. RADR is used to overcome risk of:
• Future market condition
• Inflation risk
• Credit risk
• Political risk
• Foreign currency risk
Use

5. The formula for risk premium (under CAPM) is = (Market rate of return Less Risk free rate) * beta of the project.
Formula

6. 1. Simple and easy approach
2. Appealing to risk averse investor
3. Help to reduce uncertainty
4. Brings out risk level in an investement
Advantages

7. 1. Getting an accurate risk premium is a challenging task
2. The final NPV may be inaccurate
3. It is assumed that investors are risk averse
Disadvantages

8. Reference
To know more about it, click on the link given below:
https://efinancemanagement.com/investment-decisions/risk-adjusted-discount-rate