Loading the player...
What is 'Discounting'
Discounting is the process of determining the present value of a payment or a stream of payments that is to be received in the future. Given the time value of money, a dollar is worth more today than it would be worth tomorrow given its capacity to earn interest. Discounting is the method used to figure out how much these future payments are worth today.
Next Up
BREAKING DOWN 'Discounting'
Discounting is one of the core principals of finance and is the primary factor used in pricing a stream of cash flows , such as those found in a traditional bond or annuity. For example, the succession of coupon payments found in a regular bond is discounted by a certain interest rate and summed together with the discounted par value to determine the bond's current value.
RELATED TERMS

Present Value  PV
The current worth of a future sum of money or stream of cash ... 
Present Value Of An Annuity
The current value of a set of cash flows in the future, given ... 
Discount Rate
The interest rate charged to commercial banks and other depository ... 
Discount Bond
A bond that is issued for less than its par (or face) value, ... 
Discounted Future Earnings
A method of valuation to estimate the value of a firm. 
Bond Discount
The amount by which the market price of a bond is lower than ...
Related Articles

Investing Basics
Discounting With The Discount Rate
The discount rate is the interest rate you need to earn on a given amount of money today to end up with a given amount of money in the future. Let's say you need $1,000 one year from now to go ... 
Financial Advisors
Monthly Pension Or LumpSum: Which Is Better?
When a client is faced with the choice of a monthly pension or a lumpsum payment, which one is better? Here's a quick guide on how to decide. 
Fundamental Analysis
What is Present Value?
Present value tells us how much a future sum of money is worth today, given a specified rate of return. This is an important financial concept based on the principle that money received in the ... 
Investing
Finding A Discount On Your Next Bond Investment
Discount rates have nothing to do with buying things on sale. Rather, it helps you figure out how much to pay today for a bond or cash flow in the future. 
Fundamental Analysis
Calculating the Present Value of an Annuity
The present value of an annuity is the current, lump sum value of periodic future payments as calculated using a specific rate. 
Bonds & Fixed Income
Why Stocks Outperform Bonds
Why have stocks historically produced higher returns than bonds? It's all a matter of risk. 
Investing Basics
How to Calculate the Value of Annuities
Here's everything you need to account for when calculating the present and future value of annuities. 
Active Trading Fundamentals
Key Fundamental Investment Metrics
Fundamental investors believe certain factors dictate a stock’s performance. There are a few key indicators that fundamental investors should know. 
Options & Futures
Understanding Net Present Value
Learn how this value is used to determine the worth of a project. 
Bonds & Fixed Income
Using Excel PV Function to compute Bonds PV
To determine the value of a bond today  for a fixed principal (par value) to be repaid in the future at any predetermined time  we can use an Excel spreadsheet.
RELATED FAQS

When and why should the terminal value be discounted?
Find out why investors use the terminal value, why the terminal value is discounted to the present day, and how it's related ... Read Answer >> 
What is the difference between the cost of capital and the discount rate?
Learn about the differences between the cost of capital and the discount rate as they relate to estimating a required return ... Read Answer >> 
Why is the time value of money (TVM) an important concept to investors?
Understand why the time value of money is an important concept for investors. Learn when present value and future value calculations ... Read Answer >> 
What is the effective interest method of amortization?
Find out more about the effective interest rate method and how the effective interest method is used to amortize a discounted ... Read Answer >> 
What is the difference between the present value of an annuity and the future value ...
Find out about the difference between the future value and present value of a fixed annuity, including how to use these calculations ... Read Answer >> 
Why does time value of money (TVM) assume that a dollar today is worth more than ...
Learn about time value of money, or TVM, and how a present value calculator is used to determine the value of money received ... Read Answer >>