Finance glossary
Discount Rate
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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