Definition of discount rate

1. interest rate charged by the federal reserve bankto its member banks for loans; also called rediscount rate.The federal discount rate is less than the prime rate.
2. interest rate used to convert future receipts or payments to their present value. The cost of capital(cutoff, hurdle, or minimum required rate) is used as the discount rate under the net present value method.

1. rate charged by Federal Reserve Banks for loans at the Federal Reserve discount window. The discount rate is set by each Federal Reserve Bank and approved by the Federal Reserve Board of Governors in Washington. Each Reserve Bank submits its own rate to the board, which then either approves the rate or denies it. The discount rate is not necessarily the same across all 12 Federal Reserve Banks. Occasionally, one or more of the district Fed banks has insisted on a different rate than other Fed banks. This situation could persist for several weeks, although in recent years the Reserve Banks have tended to fall into line with a uniform discount rate, reflecting the emergence of a national market for bank credit. The discount rate is one of the policy tools the Federal Reserve Board employs to carry out monitory objectives; the others are open market operations and reserve requirements. As of March 31, 1980, when the monetary control actof 1980 became law, all depository financial institutions holding transaction accounts were able to borrow at the discount window.
2. bank discount rate, quoted by banks when they accept acceptances and bills of exchange. The best names, those holding prime paper, qualify for the lowest rates.

1. interest rate that the Federal Reserve charges banks for loans, using government securities or eligible paper as collateral
2. interest rate used in determining the present valueof future cash flows.See also discounted cash flow

1. interest rate that the Federal Reserve charges member banks for loans, using government securities or eligible paper as collateral. This provides a floor on interest rates, since banks set their loan rates a notch above the discount rate. See also discount window.
2. interest rate used in determining the present value of future cash flows. See also capitalization rate.

rate charged by the Federal Reserve to commercial banks for overnight loans made by these banks. If the Federal Reserve decreases the discount rate, other rates will decline as well. Conversely, if the Federal Reserve increases the discount rate, other rates will also rise.

1. a compound interest rate used to convert expected future income into a present value. See capitalization rate, present value of annuity, present value of one.
   Example: A discount rate of 10% applied to a $100 sum expected to be received in one year results in a present value of $90.90. (The present value of one for one year is 0.909.)

2. the rate charged member banks who borrow from the federal reserve system. Same as rediscount rate.
   Example:See rediscount rate.