Discount rate

Generally, a person thinks of the money received today as of more valuable compared to the same amount received later. To put it otherwise, the value of future funds is perceived as discounted. Discount rates are variable, depending on the situation. The one who has plenty of money deposited in a bank at 1% has a low discount rate, since any secured return exceeding 1% will be profitable. As for debtors with huge amounts of money borrowed at 10% interest rate, their discount rates will be high because a secured return over 10% is required for them to bring the profit.



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