Risk Discount

See: Spread to Treasuries. See: Discount Rate.

If there's risk or uncertainty as to whether you'll get your loan back, or make money on the slice of pie ownership you're buying in a company, then you'll want a discount in the price you're paying up front. More risk? More discount.

Like...if Bill Gates is borrowing $1,000 from you, there's not a lot of risk he doesn't pay it back. If it's your roommate's drug addict cousin, odds are worse. Way worse than Bill. So if you'd charge 2% interest for a loan, you'd have to take a vast risk discount to loan your roomate's drug addict cousin that grand, and have it be worth all that risk.