For Monday you will be explaining how you come up with a discount rate and how you use that discount rate to come up with the NPV. Let's focus on the formula for PV. How do we adjust the formula for PV to take into account that our estimates of cash flows may be subject to error. To be more precise: suppose you have two assets. Asset One promises you $10,000 every year for five years and because the entity paying you the $10,000 is the federal government you are 100% confident that you will receive the funds. Asset Two promises you the same amount for the same number of years but the entity promising you the money is a restaurant owner who has been facing some business challenges. Asset Two is riskier than Asset One. How do we account for that in setting up the formula for PV