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Certainty Equivalent Calculator



Certainty Equivalent Calculator helps calculating the Certainty Equivalent.



What is Certainty Equivalent?

Certainty Equivalent is the certainty equivalent is a guaranteed return that someone would accept now, rather than taking a chance on a higher, but uncertain, return in the future.

If an investor has a choice between investing in a government bond paying 2% interest and a corporate bond paying 6% interest, and he chooses the government bond, the payoff differential is the Certainty Equivalent. The corporation would need to offer the investor a potential return of more than 6% on its bonds to convince the investor to buy corporate bond.



The Formula of Certainty Equivalent

The basic formula of the Certainty Equivalent is as follows:

Certainty Equivalent =
Expected Cash Flow
(1+Risk Premium)

Where:

Expected Cash Flow is the cash flow, the risky asset is expected to yield

A risk premium is the return the risky asset is expected to yield, over the risk-free rate of asset (risk-free return)



Certainty Equivalent Calculator



$

Insert all outcomes of the risky asset:

A % chance of of receiving $

A % chance of of receiving $

A % chance of of receiving $

A % chance of of receiving $

A % chance of of receiving $

%





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What is the ICalc website for?

Life is full of computational problems. Most of them can be solved simply. The ICalc calculator site includes hundreds of calculators that will help you solve a wide range of problems in many areas, such as health, economics, math, finance, and more.
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