Estimating Discount Rate Adjustments for Forest Investment Risk : 19th IUFRO World Congress

1990

S. 113-115

4 Abb.

Unselbständiges Werk

200086030

One of the most common ways to account for investment risk is to add a risk factor to the risk-free discount rate when computing present values of expected cash flows which are uncertain. Using certainty equivalent analysis, we show that the correct risk factor for repeating investments with long time horizons is likely to be far smaller than commonly believed - on the order of 1/2 percentage point or less for selected cases. Policy implications and limitations of the analysis are discussed.