To find the net present value (NPV) each of the cash flows is multiplied by the appropriate discount factor. These are then added up and the initial investment deducted.
The actuarial formula of pure premium of the whole life insurance is discussed, as discount factor is random.
Determining of consumer choice models and discount factor;
Present value(PV) = discount factor * C1
discount factor: How much 1 at a future date is worth today.
This paper introduces the emergence and development of asset-pricing theory, and then focuses on the stochastic discount factor model (SDF) and the empirical study.
Using the data of the project mentioned above, if we select a 2% discount factor, we get a positive NPV of $8.