Discount rate
The rate used to translate future cash flows into present value.
Plain languagePractical exampleConnected reading
01
What is it?
The rate used to translate future cash flows into present value.
02
Why does it matter?
It strongly affects asset and company values as rates, risk premia and capital structure change.
03
How should it be read?
Check that the rate matches the cash flow's currency, horizon and risks.
04
Common mistake
Treating it as a fixed assumption whose small changes do not affect value.
A simple example
A higher discount rate produces a lower present value for the same cash flow.