Because of the basic mathematics of compounding and discounting, the risk-adjusted discount rate (RADR) approach implicitly assumes that risk is an increasing function of time.

Question

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The basic mathematics of compounding and discounting show that a cash flow received in the future is worth less than the same cash flow received today. This is because there is risk associated with waiting for a cash flow, and the longer the wait, the higher the risk. Therefore, the risk-adjusted discount rate (RADR) approach assumes that risk is an increasing function of time.

Because of the Basic Mathematics of Compounding and Discounting, the Risk-Adjusted