Investing term
What is Discount rate?
The annual rate used to translate future dollars back into today's dollars in a DCF.
The discount rate is the annual percentage used to translate future money into today's value in a valuation. It reflects both the time value of money and the riskiness of the cash flows — riskier or more distant cash gets discounted harder. A higher discount rate lowers the value you'd assign today, which is why rising interest rates tend to pull asset valuations down.
For example
At a 10% discount rate, $1,000 arriving in a year is worth about $909 today — and the higher the rate, the less that future cash is worth now.
Discount rate is taught hands-on in Stage 15 — Valuation for Investors.
See the lesson →