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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.
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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.
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RELATED FAQS

What are the disadvantages of using net present value as an investment criterion?
While net present value (NPV) calculations are useful when you are valuing investment opportunities, the process is by no ... 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?
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What is the effective interest method of amortization?
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Why would you take DCF into account rather than simply projecting future revenues?
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What does it mean when a bond is selling at a premium? Is it a good investment?
When the terms premium and discount are used in reference to bonds, they are telling investors that the purchase price of ... Read Answer >>