Discounting under uncertainty

Suppose asset pricing is governed by the CAPM or the ICAPM, and the expected 1-period simple returns on the net cash flows (NCFs) of investment projects are constant through time. Then the NCFs are priced by discounting their expected values with their expected 1-period simple returns. But when NCFs are priced by discounting their expected values with constant CAPM or ICAPM expected 1-period simple returns, distributions of NCFs more than 1 period ahead are likely to be skewed right. Expected payoffs are then larger than median payoffs, and expected payoffs are progressively more unusual outcomes for longer investment horizons.