What is a risk adjusted discount rate?

Risk adjusted discount rate is a term used in business that defines a business investment that in theory has a "zero risk" when calculating the rate of return, according to Cornell Law.This rate is the minimum rate that the investor believes he will obtain with the venture.

This is a theoretical term, however, because in the real world there is no such thing as a risk free investment or a risk free adjusted discount rate. All investments have risks and even if the likelihood is extremely low that there will be risk, there is still the possibility of risk, notes Cornell University.