The Journal of Financial and Quantitative Analysis © 1979 University of Washington School of Business Administration

Evaluating investments by discounting anticipated future benefits at an exogenously determined risk-adjusted discount rate (hereafter referred to as the RADR approach) is well accepted in the canon of finance. If benefits (D) are to be received for T periods and if k, the discount rate, is constant over each of the t periods, then the discrete time net present value (NPV) is de-fined as: T t (1) NPV = E D /(l + k). t=0 A positive NPV characterizes a desirable investment. A frequently offered criticism of the RADR approach centers on the fact that both risk and timing considerations are treated in the denominator of equation (1). The certainty equivalent (CE) method has been suggested as a way of distinguishing between the two effects. In computation of the CE-NPV, riskless benefits that are equal in utility to the risky projected benefits

Of the behavioral recommendations garnered from modern capital market theory, few, if any, generalizations have been documented as convincingly as the simple advice to hold several assets in one's portfolio. Sharpe made such a conclusion perfectly clear when he stated [27, p. 184]:If the market is efficient and if an investor is privy to no special information or predictive power, what should he do? First, and most important: diversify.

The study investigates the information content of the foreign sensitive payment disclosures made during the Securities and Exchange Commission's ‘voluntary’ disclosure program. The results of the information content tests and the tests of the relationship between payment size and abnormal security returns imply that investors may have been reacting to the expectation of the loss of future business or to the possibility of future government sanctions.