The Discount Rate

The discount rate is the interest rate used to determine the present value of future cash flows. Essentially, it's a way to calculate how much future money is worth in today's terms. For example, receiving $100 a year from now is not worth the same as having $100 today because of factors like inflation and the opportunity to invest that money. The discount rate accounts for these factors, helping businesses, investors, and policymakers evaluate the attractiveness of an investment or financial decision by comparing the present and future values.