A rate used to discount returns of high-risk investments is termed a risk-adjusted discount rate. This rate is used to calculate the net present value of the risky investment. The risk-adjusted discount rate calculator is an online aid in such calculation. It signifies that even though the chances of losses are higher in an investment being a high-risk investment, it tends to earn a higher return. The risk-adjusted discount rate is more appropriate for risk-averse investors who are willing to invest in a project with high risk.
The formula for calculating Risk-Adjusted Discount Rate is:
Risk-Adjusted Discount Rate = Risk-free Rate of Interest + Risk Premium
Risk-Adjusted Discount Rate Calculator
How to Calculate Using Calculator?
The user simply has to insert the following data into the calculator for a quick result:
Risk-free Rate of Interest – It is the rate of interest received on investments with zero risks. Some example of risk-free investments includes treasury bills, fixed deposits, etc.
Risk Premium – The formula to calculate Risk premium (under CAPM) is:
Risk Premium = (Market Rate of Return – Risk-free Rate)*Beta
Beta is a unit to measure the risk. To know more about beta, you can refer to the following articles:
- Risk Adjusted Discount Rate – Meaning, Formula, Example and More
- How is the Interest Rate related to the Required Rate of Return, Discount Rates, and Opportunity Cost?
- Market Risk Premium
- Internal Rate of Return Calculator
- Cost-Benefit Ratio Calculator
- Present Value Table – Meaning, Important, How To Use It