Questions tagged [discount-rate]

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4
votes
1answer
163 views

How does the federal funds rate compare to the federal discount rate?

The federal funds rate is the interest rate charged to banks when they borrow from each other overnight in the federal funds market to satisfy their reserve requirements. This rate is influenced by ...
3
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3answers
138 views

Discounting terminology confusion

An example of the terminology that surrounds discounting that confuses me can be found in "Investment and Hysteresis" by Dixit: Let future revenues be discounted at a positive rate $\rho &...
3
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1answer
60 views

Goverment spending: how to calculate the discount rate for it? What is the opportunity cost of federal funds?

When discounting in order to obtain the present value, one has to determine the opportunity cost of capital. In this case, I don't want to do it for a project (or a comparison of two similar projects),...
3
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1answer
51 views

Comparing rates of return for different assets using $V=Pe^{rT}$

I have been playing with $V=Pe^{rT}$ and have been thinking about how to apply it to situations involving different assets growing at different rates. Suppose I had data for the historic sale prices ...
3
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1answer
69 views

What factors affect the temporal discount rate individuals apply in decision making?

Discount rate is rate at which actors will value something that occurs in the future at less than its value now. A simple hypothetical test that would determine this would be: 'Would you rather ...
2
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0answers
30 views

Hyperbolic Discount function

I'm trying to determine my hyperbolic discount function for a given set of my own time preferences. I have determined that I am indifferent between {$}1000 today and {$}1004 tomorrow; {$}1000 today ...
2
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0answers
15 views

Due-diligence behind discount window lending

Its clear the Federal reserve is doing risk assessments at the discount window since they separate credit into primary and secondary. I'm curious how secondary credit risk is handled. Given that ...
2
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1answer
253 views

International Capital Asset Pricing Model (CAPM)

I wanted to value a High-tech start-up of which I have the cash flows of the coming 6 years. I decided to use the Discounted Cash Flow Method. To do so, I calculated the Discount rate. For a High-...
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4answers
68 views

Discount & Interest rates

Small question, is discount rates and interest rates the same/similar thing in economics? A bit confused regarding this.
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2answers
121 views

Rationale for discounting

I am interested in understanding the rationale behind discounting in the context of government policy appraisal. As far as I understand it, there are three main components to the discount values ...
1
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1answer
54 views

Is there any investment model with time-varying depreciation rate?

Is there investment model with different depreciation rate. For example, d1(depreciation rate in 1 period), d2(depreciation rate in 2 period)
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0answers
93 views

Why is there a stochastic discount factor in firms present value?

In a book I am reading, the problem of the firms is described as maximizing current market value of profits. $$\max \sum_{k=0}^\infty \Delta_{t, t+k} \cdot "\text{profits in period k}"$$ So, ...
1
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1answer
403 views

Calculate optimal discount for product bundling

So recently I made some rules with my transaction data. Based on it I can determine which products are profitable to bundle it together. But even though I know e.g. product A→ product B, are there ...
0
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1answer
69 views

discount factor, function, and rate

Consider an exponential discount factor $\delta\in(0,1)$. Similarly, consider an exponential discount $\textit{function}$: $g(t)=\delta^t$. Then, is defining the discount $\textit{rate}$ as below a ...
0
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1answer
41 views

Rationale and Methodology for Discounting the Investment in an NPV Calculation

It is clear to me why the benefits accruing from an investment should be discounted. What I wish to understand is what the correct way discount the investment itself is. Assuming zero inflation, ...
0
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1answer
136 views

McCall Search Model: Present value of lifetime income

In the Bellman for the search model, how is the present discounted value of future income equal to $\frac{w}{1-\beta}$? Sounds like a basic question but I just can't comprehend the math in my head, ...
0
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1answer
34 views

What effects the time value of money

My question regards the rationale behind the Present Value computation of a single cash flow received after $n$ periods, $CF_{n}$. Most textbooks make the following statement: $$PV =\frac{CF_{n}}{(1+x)...
0
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1answer
188 views

What is the difference between the discount window and Fed repos?

I'm wondering how the Fed's discount window differs from it's involvement in the repo market. To the best of my knowledge, both are tools used to conduct monetary policy and both are also short-term, ...
0
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1answer
408 views

Interpeting equivalent annual cash flows

So i have this question: RainMan Inc. is in the business of producing rain upon request. They must decide between two investment projects; a new airplane for seeding rain clouds or a new weather ...
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2answers
72 views

Yield To Maturity exact meaning

From investopedia: "YTM is the total return anticipated on a bond if the bond is held until it matures" I have also seen this interpretation used in other sources however this seems wrong to me. ...
0
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1answer
131 views

Why would a rise in the discount rate stop foreign gold drain and make banks fail?

I am reading "Capitalism and Freedom" by Milton Friedman. In Chapter 3, "The control of Money", Dr. Friedman explains how the Fed exacerbated the Great Depression of the 1930s. In particular: In ...
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0answers
16 views

Practical values for project discount rate

Are there any practical values for the discount rate I should use to value a project? Of course, the discount rate depends on the project itself, but are there any reference points what are typical ...
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0answers
10 views

How to account for the cost of financing in discounted cash flow analysis?

The discount rate accounts for the opportunity cost of capital the cost of capital (and usually also for risk, but let's ignore it) So, if I invest 1000 and I get 1100 in return next year, you could ...
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0answers
30 views

How to adjust for risk when determining the price of a security?

When valuing a security future cash flows are discounted to present value. This is for two reasons: You are giving up cash which could have earned certain returns (in government bonds or similar) ...