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Your entrepreneurial roommate bursts into your room and says that they have "the best idea ever". It's virtually foolproof and would pay off $50 next year and $75 the year after. Your roommate reminds you that last night at dinner you were complaining that you could only expect to earn 5% on your other available investment opportunities, and, given that opportunity cost, this deal would be worth $115.65 to you. You smile as your roommate continues to describe the investment but what you are really thinking is "they're a little crazy"; by your estimation there's about a 50% chance of getting $50 next year (you get $0 otherwise) and a 65% chance of getting $75 the following year (you get $0 otherwise). Year 1 is independent of Year 2 in terms of success. But, you don't want to hurt your roommates feelings and offer them a low price and explain that they are way too optimistic (or crazy). Instead you go to your room and do a few calculations. When you return you say, "This is truly awesome and I feel special that you've invited me to participate in this investment. But, I've got to tell .. it's pretty risky. It's so risky that I can't use by normal cost of capital of 5%. So, the most I can pay you is $X based on a risk adjusted discount rate of Y%". You want to fair to your roommate and you're being perfectly honest. Based on this situation what are X and Y? Figure out what this investment is really worth to you ($X) and use Goal Seek to find the risk-adjusted" rate (Y%).

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