In the chapter, you learned that when future income from an asset is uncertain, the asset€™s value will be less than the present value of its future payments, because present value is calculated assuming these payments are certain. A different way to think about uncertainty is to calculate a modified present value, which uses a higher discount rate, equal to the safe lending interest rate plus a risk premium. In Problem 5, answer a through d again, assuming that (a) each interest rate provided in the problem is for riskless lending; and (b) the risk premium for developing new drugs is 20percent.

Y. Value = (1 + r1) + IT r1)(1 + r2) Y. (1 r,1 t r2)(1 + r3)