discount rate: meaning, definition, pronunciation and examples
C1Formal, Technical, Business
Quick answer
What does “discount rate” mean?
The interest rate used to determine the present value of future cash flows.
Audio
Pronunciation
Definition
Meaning and Definition
The interest rate used to determine the present value of future cash flows; a rate at which something is reduced in price or value.
1) (Finance) The minimum interest rate set by a central bank for lending to commercial banks. 2) (Business) A percentage deducted from a product's or service's original price. 3) (Investment) The rate of return used in discounted cash flow analysis to evaluate an investment.
Dialectal Variation
British vs American Usage
Differences
No significant semantic differences. Spelling of related terms may differ (e.g., 'central bank' practices are identical in concept). The term is used identically in financial and economic contexts.
Connotations
Identical technical connotations in finance. In everyday retail, 'discount' is more common than the full term 'discount rate'.
Frequency
Equally frequent in professional financial and economic discourse in both regions. Rare in casual everyday speech.
Grammar
How to Use “discount rate” in a Sentence
The [Central Bank] set the discount rate at [number]%.We applied a discount rate of [number]% to the future cash flows.The discount rate used in the model was [adjective].Vocabulary
Collocations
Examples
Examples of “discount rate” in a Sentence
verb
British English
- The Bank of England may discount certain bills at its prevailing rate.
- Traders were discounting the shares heavily following the profit warning.
American English
- The Federal Reserve discounts treasury securities for member banks.
- The market is already discounting the expected rise in interest rates.
adverb
British English
- The cash flows were discounted-rate carefully.
- (This construction is highly unusual and not standard; 'at a discounted rate' is the adverbial phrase.)
American English
- (See British note; 'at a discounted rate' is the standard phrasing, e.g., 'They sold the inventory at a discounted rate'.)
adjective
British English
- Discount-rate changes are a key monetary policy tool.
- They sought discount-rate financing for the project.
American English
- Discount-rate policy is under review.
- The discount-rate window is a facility for eligible institutions.
Usage
Meaning in Context
Business
The board will review the discount rate offered to bulk purchasers next quarter.
Academic
The study critiques the use of a constant social discount rate in long-term environmental cost-benefit analysis.
Everyday
What's the discount rate for students at this cinema?
Technical
The net present value (NPV) is highly sensitive to changes in the chosen discount rate.
Watch out
Common Mistakes When Using “discount rate”
- Using 'discount rate' to mean 'discounted price' (e.g., 'I got it at a good discount rate').
- Confusing 'discount rate' (the percentage) with 'discount' (the resulting amount or the act).
- In finance, using it interchangeably with 'interest rate' without specifying the context (lending vs. discounting cash flows).
FAQ
Frequently Asked Questions
Not exactly. An interest rate is the cost of borrowing money. A discount rate is a specific type of interest rate used by central banks or in finance to calculate present value. In everyday retail, it simply means the percentage of a price reduction.
It's understood but overly formal. In casual contexts, phrases like 'percentage off', 'how much of a discount', or just 'discount' are more natural (e.g., 'What's the student discount?' not 'What's the student discount rate?').
Because a higher discount rate means future cash is considered riskier or the opportunity cost of capital is higher. Therefore, money expected in the future is 'discounted' (reduced in value) more heavily when brought to its present value.
'Discount rate' is the specific percentage used for the reduction. 'Discounted rate' describes a price or fee that has already been reduced (e.g., 'We offer a discounted rate for members').
The interest rate used to determine the present value of future cash flows.
Discount rate is usually formal, technical, business in register.
Discount rate: in British English it is pronounced /ˈdɪskaʊnt ˌreɪt/, and in American English it is pronounced /ˈdɪskaʊnt ˌreɪt/. Tap the audio buttons above to hear it.
Phrases
Idioms & Phrases
- “None directly. Related: 'at a discount'.”
Learning
Memory Aids
Mnemonic
Think of a DISCount RATE as the RATE at which value is DISCounted (reduced) either for a sale today or for money received in the future.
Conceptual Metaphor
TIME IS MONEY / FUTURE VALUE IS A SHRINKING OBJECT (A higher discount rate 'shrinks' the present value of future money more aggressively.)
Practice
Quiz
In which context would 'discount rate' MOST LIKELY refer to an official tool of economic policy?