Portfolio selection based on the present discounted value of gains

An investment results in a gain or loss in the future, it is reasonable to use its the present discounted value of gain or loss to evaluate the investment. However, portfolio selection theory does not take this into account in evaluating investments. This paper uses the present discounted value of the gain as the base of investment evaluation, and gives the formulates of return and risk of an investment under this base. Furthermore, we draw the risk-return frontier of a portfolio consisted of two risky assets, and compare it with that built in current portfolio theory, we make it clear that the two ways of investment evaluation lead to different investment decisions. Furthermore, we propose two models for portfolio selection taking the time discount of investment gains into consideration.