3 a refund of some fraction of the amount paid [syn: rebate]
4 an amount or percentage deducted [syn: deduction]
1 bar from attention or consideration; "She dismissed his advances" [syn: dismiss, disregard, brush aside, brush off, push aside, ignore]
2 give a reduction in price on; "I never discount these books-they sell like hot cakes"
- (in some senses) dĭskount', /dɪsˈkaʊnt/, /dIs"kaUnt/
- (in some senses) dĭs'kount, /ˈdɪskaʊnt/, /"dIskaUnt/
- Noun and adjective:
- dĭs'kount, /ˈdɪskaʊnt/, /"dIskaUnt/
- Rhymes: -aʊnt
EtymologyAlteration of décompte.
- To deduct from an account, debt, charge, and the like; to make an abatement of; as, merchants sometimes discount five or six per cent for prompt payment of bills.
- To lend money upon, deducting the discount or allowance for interest; as, the banks discount notes and bills of exchange.
- To take into consideration beforehand; to anticipate and form conclusions concerning (an event).
- To leave out of account; to take no notice of.
- To lend, or make a practice of lending, money, abating the discount; as, the discount for sixty or ninety days.
- A reduction in price.
- A deduction made for interest, in advancing money upon, or purchasing, a bill or note not due; payment in advance of interest upon money.
- The rate of interest charged in discounting.
reduction in price
deduction made for interest
rate of interest charged in discounting
- Of goods, available at reduced prices; discounted.
- This store specializes in discount wares.
- Of a store, specializing in goods at reduced prices.
- If you're looking for cheap clothes, there's a discount clothier around the corner.
In finance and economics, discounting is the process of finding the present value of an amount of cash at some future date, and along with compounding cash forms the basis of time value of money calculations. The discounted value of a cash flow is determined by reducing its value by the appropriate discount rate for each unit of time between the time when the cashflow is to be valued to the time of the cash flow. Most often the discount rate is expressed as an annual rate.
ExampleTo calculate the present value of a single cash flow, it is divided by one plus the interest rate for each period of time that will pass. This is expressed mathematically as raising the divisor to the power of the number of units of time.
Consider the task to find the present value PV of $100 that will be received in five years. The question is what the present value of this future transaction is. Or equivalently, which amount of money will grow to $100 in five years when subject to a constant discount rate?
Assuming a 12% per year interest rate it follows
- =\frac=56.74 $.
Discount rateThe discount rate which is used in financial calculations is usually chosen to be equal to the cost of capital. Some adjustment may be made to the discount rate to take account of risks associated with uncertain cashflows, with other developments.
The discount rates typically applied to different types of companies show significant differences:
- Startups seeking money: 50 – 100 %
- Early Startups: 40 – 60 %
- Late Startups: 30 – 50%
- Mature Companies: 10 – 25%
Reason for high discount rates for startups:
- Reduced marketability of ownerships because stocks are not traded publicly
- Limited number of investors willing to invest
- Startups face high risks
- Over optimistic forecasts by enthusiastic founders.
One method that looks into a correct discount rate is the capital asset pricing model. This model takes in account three variables that make up the discount rate:
1. Risk Free Rate: The percentage of return generated by investing in risk free securities such as government bonds.
2. Beta: The measurement of how a company’s stock price reacts to a change in the market. A beta higher than 1 means that a change in share price is exaggerated compared to the rest of shares in the same market. A beta less than 1 means that the share is stable and not very responsive to changes in the market. Less than 0 means that a share is moving in the opposite of the market change.
3. Equity Market Risk Premium: The return on investment that investors require above the risk free rate.
Discount rate= risk free rate + beta*(equity market risk premium)
Discount factorThe discount factor, P(T), is the number which a future cash flow, to be received at time T, must be multiplied by in order to obtain the current present value. Thus for a fixed annually compounded discount rate we have
- P(T) = \frac
For fixed continuously compounded discount rate we have
- P(T) = e^ \,
Other discountsFor discounts in marketing, see discounts and allowances, sales promotion, and pricing.
discount in German: Abzinsung
discount in Spanish: Descuento
discount in French: Actualisation
discount in Dutch: rente
discount in Italian: sconto
discount in Japanese: 割引
discount in Chinese: 贴现
discount in Polish: Dyskonto
discount in Russian: Дисконтирование
discount in Finnish: Diskonttaus
discount in Swedish: Diskontera
discount in Vietnamese: Chiết khấu
discount in Ukrainian: Дискаунт
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