What is Discount Rate? | Learn with Finance Strategists | Under 3 Minutes

Discount rate is the rate of return used to discount future cash flows when calculating an investment’s present value.

A discount rate is applied to future cash flows because money earned in the future is less valuable than money earned today.

This is based on the principle that money should make more money over time - a concept known as the “time value of money.”
_______________________
0:00 Discount Rate Definition
0:31 When is Discount Rate Used?
1:04 Discount Rate Purpose
1:30 Discount Rate Example
2:14 Discount Rate Question & Application
_______________________

Learn more by visiting the page:

Check out the main Finance Strategists YouTube Page here:
_______________________
Message from the founder:
Here at Finance Strategists, we believe one of the best ways you can help someone is with their finances. We create helpful informational videos and content to help people take control of their finances.

Finance Strategists plans to launch "Finance Strategists for Kids" where we teach fundamental financial concepts to kids in a clear manner allowing them to generate margin in their lives to bless other people. We believe raising up a generation of leaders with financial freedom can change individual lives, neighborhoods, countries, and the world.
_________________________
🔔 Hit the bell next to Subscribe so you don't miss a video!
📧 Fill out this form to receive the "Finance Word of the Day" in your inbox!
_________________________
Follow us on Socials:
Instagram: @financetrategists
Twitter: @FinStrategists

[peacego]

God bless you queen of answers. Been reading for 30 minutes explanations of this and you explained in 3 mins. THANKS

[wesleypage]

Great explanation guys, and in under 3 minutes! Thank you!

[mohammedanisboumaza]

The video is well presented, however, I believe there's a mistake in the Formula you used to calculate the Discount Factor, It should be: (1+i)^-n, where i represents the discount rate and n the number of years. the negative sign is for the the number of years. It can also be defined as 1/(1+discount rate)^n.

[simlowsb]

Hello. Thanks for the video. I'm still unsure which discount rate I should take. The two rates that matters to me are financing rate and fixed deposit rate Do I apply discount rate as the financing rate or a fixed deposit rate? Which one would make more sense?

[ErickSmith-fl]

great video. the concept is much clearer now

[ChezzUniverse]

The Present Value of Future Cash Flow With 10% Rate is Coming About at $ 4, 868 compared to The $ 4, 695

[rafipermadi]

Amazing video! Very illustrative and really did help me to understand what discount rate meant

[deeksharani]

Amazing !! Thankyou for making it so easy to understand,
Could you Please answer - How the Companies select the Discount rate?

[judyza]

What is the appropriate discount rate for new investment project for large plc?

[mohammedkittan]

actually this question you have put in the end is what i'm searching for the answer for it, so how can i find the answer please

[AkshayrajKore]

It should show (1-0.1)^1, (1-0.1)^2, ..., (1-0.1)^7
The exponent should be outside of the base's brackets

[thanujrukshan]

How can find discounting factor for new project

[markgabriel]

I actually went to this video for the answer to the same question at the end of your video haha so i had no answer :(

[lachlanborg]

This channel is so helpful for Uni, will recommend it to everyone! Thank you!!

[stephenlee]

So, what is use of discount rate publicized by one county's central bank?

[hafz]

For the discount rate examples section shouldn't year 2 be 6000 x (1-0.1)^2 and so on?

[vnghnfghn]

pls Help me with this : When to use the equivalent interest rate as the discount rate?

[sairasarwar]

The answer to the question wouldn’t it just be what ever the cost of capital is for the company so if it’s 5% discount factor is 1.05 and if 2% it’s 1.02???

[salardz]

Can someone please tell me where the number 1 comes from in the discount rate? and what does it mean.
Why we divided and why we add to discount rate?
You have no idea how grateful I will be for the answer, Thank you IN advance.

[nkcaoning]

Nice video. Should the discount factor be 1/(1+r) instead of 1-r? and also the power should be outside of the bracket.