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. Discounting is the primary factor used in pricing a stream of tomorrow's cash flows.
BREAKING DOWN 'Discounting'
For example, the coupon payments found in a regular bond are discounted by a certain interest rate and added together with the discounted par value to determine the bond's current value.
From a business perspective, an asset has no value unless it can produce cash flows in the future. Stocks pay dividends. Bonds pay interest, and projects provide investors with incremental future cash flows. The value of those future cash flows in today's terms is calculated by applying a discount factor to future cash flows.
Time Value of Money and Discounting
When a car is on sale for 10% off, it represents a discount to the price of the car. The same concept of discounting is used to value and price financial assets. For example, the discounted, or present value, is the value of the bond today. The future value is the value of the bond at some time in the future. The difference in value between the future and the present is created by discounting the future back to the present using a discount factor, which is a function of time and interest rates.
For example, a bond can have a par value of $1,000 and be priced at a 20% discount, which is $800. In other words, the investor can purchase the bond today for a discount and receive the full face value of the bond at maturity. The difference is the investor's return. A larger discount results in a greater return, which is a function of risk.
Discounting and Risk
In general, a higher the discount means that there is a greater the level of risk associated with an investment and its future cash flows. For example, the cash flows of company earnings are discounted back at the cost of capital in the discounted cash flows model. In other words, future cash flows are discounted back at a rate equal to the cost of obtaining the funds required to finance the cash flows. A higher interest rate paid on debt also equates with a higher level of risk, which generates a higher discount and lowers the present value of the bond. Indeed, junk bonds are sold at a deep discount. Likewise, a higher the level of risk associated with a particular stock, represented as beta in the capital asset pricing model, means a higher discount, which lowers the present value of the stock.

Present Value  PV
Present value is the current value of a future sum of money or ... 
1%/10 net 30
1%/10 net 30 is a way of providing cash discounts on purchases, ... 
Discount Rate
Discount rate is the interest rate charged to commercial banks ... 
Bank Discount Rate
The bank discount rate is the interest rate for shortterm moneymarket ... 
Discount Yield
Discount yield is a measure of a bond's percentage return, frequently ... 
Discount Bond
A discount bond is a bond that is issued for less than its par ...

Financial Advisor
A Guide on the RiskAdjusted Discount Rate
When a project or investment faces higher amounts of risk or uncertainty, it may be appropriate to utilize the riskadjusted discount rate. 
Investing
Understanding Bond Prices and Yields
Understanding this relationship can help an investor in any market. 
Insurance
Get Sale Prices On Healthcare With Discount Plans
Medical discount plans can help the uninsured or underinsured afford better healthcare. 
Retirement
Top Discounts For Seniors
Here is a rundown of some of the best senior discounts across the country. 
Retirement
Senior Discounts Alert: National Parks Pass Rises Aug. 28
First, Social Security rose a measly 0.3%. Now, the national parks lifetime pass is going up 8 times. Yet another reason to save with senior discounts. 
Financial Advisor
Calculate PV of different bond type with Excel
To determine the value of a bond today — for a fixed principal (par value) to be repaid in the future — we can use an Excel spreadsheet. 
Investing
Top 3 Pitfalls Of Discounted Cash Flow Analysis
Find out why the Discounted Cash Flow (DCF) method can be difficult to apply to reallife valuations. 
Investing
Digging Into The Dividend Discount Model
The DDM is one of the most foundational of financial theories, but it's only as good as its assumptions.

How do central banks impact interest rates in the economy?
Learn how central banks such as the Federal Reserve influence monetary policy in the economy by increasing or decreasing ... Read Answer >> 
Why does the time value of money assume that a dollar today is worth more than a ...
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 >>