Discount Rate

Discount Rate - 

A discount rate is an interest rate that is used to “discount” the value of future expected payments to present value. In effect, a discount rate removes the future interest that a present value sum would earn until a future payment would be expected. If a stream of future payments of $1,000 per year for ten years is “discounted” to present value, the value will be significantly less than $10,000. If that present value is invested in securities with an interest rate that is used as the discount rate, the fund will make scheduled payments, but attract interest on the remaining balance. Over the term of the stream of future payments, the accumulation of interest at the discount rate will provide the fund with monies needed to make all scheduled payments.

From: http://www.umsl.edu/divisions/artscience/economics/ForensicEconomics/definitions.html



Also see: Net discount rate