Discount Totally Explained

Everything about Discounted totally explained

In finance and economics, discounting is the process of finding the present value of an amount of cash at some future date, and along with compounding cash forms the basis of time value of money calculations. The discounted value of a cash flow is determined by reducing its value by the appropriate discount rate for each unit of time between the time when the cashflow is to be valued to the time of the cash flow. Most often the discount rate is expressed as an annual rate.

Example

To calculate the present value of a single cash flow, it's divided by one plus the interest rate for each period of time that will pass. This is expressed mathematically as raising the divisor to the power of the number of units of time.
Consider the task to find the present value PV of $100 that will be received in five years. The question is what the present value of this future transaction is. Or equivalently, which amount of money will grow to $100 in five years when subject to a constant discount rate?
Assuming a 12% per year interest rate it follows ť

,

Other discounts

For discounts in marketing, see discounts and allowances, sales promotion, and pricing.

Further Information

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