- Discount Rate
1. The interest rate that an eligible depository institution is charged to borrow short-term funds directly from a Federal Reserve Bank. Different types of loans are available from Federal Reserve Banks and each corresponding type of credit has its own discount rate.
2. The interest rate used in discounted cash flow analysis to determine the present value of future cash flows. The discount rate takes into account the time value of money (the idea that money available now is worth more than the same amount of money available in the future because it could be earning interest) and the risk or uncertainty of the anticipated future cash flows (which might be less than expected).
1. This type of borrowing from the Fed is fairly limited. Institutions will often seek other means of meeting short-term liquidity needs. The Federal Funds Discount Rate is determined by the average rate which banks are willing to charge each other for overnight funds.
2. Let's say you expect $1,000 dollars in one year's time. To determine the present value of this $1,000 (what it is worth to you today) you would need to discount it by a particular rate of interest. Assuming a discount rate of 10%, the $1,000 in a year's time would be the equivalent of $909.09 to you today (1000/[1.00 + 0.10]).
Investment dictionary. Academic. 2012.
Look at other dictionaries:
discount rate — n 1: the interest on an annual basis deducted in advance on a loan 2: the interest levied by the Federal Reserve for advances and rediscounts Merriam Webster’s Dictionary of Law. Merriam Webster. 1996 … Law dictionary
discount rate — n. 1. DISCOUNT (n. 3) 2. the rate at which the Federal Reserve Banks discount or rediscount securities offered by member banks … English World dictionary
discount rate — discount .rate n [C usually singular] the interest rate that a country s ↑central bank charges to other banks … Dictionary of contemporary English
discount rate — discount ,rate noun count BUSINESS the rate of interest that The Federal Reserve charges another bank that borrows from it … Usage of the words and phrases in modern English
Discount rate — For the interest rate charged to banks for borrowing short term funds directly from the Federal Reserve, see discount window. For the fees charged to merchants for accepting credit cards, see Discount Rate under Merchant Account. For discount… … Wikipedia
discount rate — The interest rate charged on loans by the Federal Reserve Bank. Chicago Board of Trade glossary The interest rate charged by the Federal Reserve to its member banks (banks which belong to the Federal Reserve System) for funds they borrow. This… … Financial and business terms
discount rate — Finance. 1. the rate of interest charged in discounting commercial paper. 2. the interest rate charged by Federal Reserve Banks on loans to their member banks, usually against government securities as collateral. 3. the rediscount rate. [1925 30] … Universalium
Discount rate — The interest rate that the Federal Reserve charges a bank to borrow funds when a bank is temporarily short of funds. Collateral is necessary to borrow, and such borrowing is quite limited because the Fed views it as a privilege to be used to meet … Financial and business terms
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discount rate — 1) The hurdle rate of interest or cost of capital rate applied to the discount factors used in a discounted cash flow appraisal calculation. The discount rate may be based on the cost of capital rate adjusted by a risk factor based on the risk… … Big dictionary of business and management