Verbull Word of the day
Finance glossary

Discount Rate

Macro · intermediate
Definition

The rate the Fed charges banks for short-term loans, or a DCF rate.

In monetary policy, the discount rate is the interest the Federal Reserve charges banks borrowing directly from it. In valuation, the discount rate is the rate used to convert future cash flows to present value. Both reflect the cost or time value of money.

In a sentence

Analysts plugged a higher discount rate into the model, which lowered the company's present value.

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