What is the mathematical relationship between the probability of a return and a discount rate/risk premium? ( ?)
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isn't NPV what you get when you apply a discount rate (WACC + RP)? I be learnin'.
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WACC? I think discount and return rate are independent vars. NPV is how you put them together.
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I thought risk premium was what you added to weighted average cost of capital to get a discount rate…
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…then you plug the discount rate into an iterated discounted cash flow function which gives you NPV…
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…what I'm asking is if you have P(investment successful), how do you turn that into a risk premium?
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