What is the difference between the discount and a normal interest rate? What prompts a discount rate?

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Posted by Camille Cavicchio (MONEY FORUMS: 4, Answers: 0)
Asked on November 2, 2015 7:36 pm
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Camille, we usually refer to an interest rate (r in the compounding and discounting equations) as a discount rate when we are using the discounting formula -- taking the net present value. When we are using an interest rate to discount, the rate represents the "required" return for us to consider investing in a proposed investment. When we talk about "normal" interest rates, such as what you would earn on an investment, it is the interest rate we expect to earn.
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Posted by Beth Tallman (MONEY FORUMS: 1, Answers: 61)
Answered: November 3, 2015 4:59 pm
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