Talk:Annual effective discount rate

wording
"The annual effective discount rate is the annual interest divided by the capital including that interest, which is the interest rate divided by 100% plus the interest rate." Can't this be worded better? I find the "interest rate divided by 100% (which is divided by 1, itself, brings it back to the same value)" a little confusing, and I've no idea what is meant by "interest rate divided by 100% plus the interest rate" —Preceding unsigned comment added by 118.100.80.118 (talk) 08:24, 22 November 2009 (UTC)

question about changing economic discount rate
Can anyone explain what happens when the discount rate increases, or decreases, and how this effects the Reserve ratio and interest rates in the IS/LM model?

A: The reserve ratio and the discount rate are both policy instruments set directly by the central bank, so a change in the discount rate won't affect the reserve ratio directly. In the IS-LM model there is only one rate of interest: 'the' rate of interest. It is therefore not possible to model a change in the discount ratio directly using IS-LM. A change in the discount rate will most likely cause a change in the short-term rate of interest in the inter-bank market (sometimes called the 'money market'). This may cause further changes out along the yield curve to longer-term rates of interest, which in turn will affect investment decisions. It is these relationships between 'the' rate of interest and investment decisions (and the money supply) that the IS-LM attempts to capture. Jomichell (talk) 19:34, 26 November 2008 (UTC)

Changing Math discount to financial discount
I'm wondering if anyone has any problems with my changing the heading from math discount rate to financial discount rate. Eventually, I would like to create a totally seperate article on the topic. cannona 21:53, 9 August 2006 (UTC)

Discount rates in South Africa
Would someone explain to me how does government determine discount rates? I understand that there is correlation between discount rates and interest rates, does this correlation mean causation?

A: The short answer is 'not necessarily'. The long answer is pretty long. Jomichell (talk) 19:35, 26 November 2008 (UTC)

short term? re-election?
i would like to point out that according to this nice little free pamphlet/comic book that the federal reserve bank of new york, the (united states) federal bank governers are reappointed every 14 years, and staggered in retirement so that only one retires from the position every two years so as to deter the president (of the united states) from making short-term decisions on the appointment of governors.

This fairly-well addresses the 10-year problem, and as for the 200-year problem, we'll all be basking in cosmic radiation because of earth shifting magnetic poles by then anyway, so we might as well be poor mutants.

I would like this, if it is confirmed by some more knowledgable source than myself, to be included in the paragraph concerning how short-sighted and pointless it is to have anything like a discount rate for banks.

Disambiguation needed on discount rates
I can think of several different meanings for the term that are not covered here, and are more standard uses than the "mathematical discount rate" show here. Should this be done with a separate page, or right here? I would argue that the discount rate explained here is perhaps the least common use of the term.--Gregalton 06:04, 20 November 2006 (UTC)

Federal reserve discount rate?
I followed a link here, the context of which was the U.S. Federal Reserve's "discount rate". Can disambig and any info on that specific subject be provided? 68.122.4.16 02:37, 16 July 2007 (UTC)

Comment: Not the most common meaning of discount rate
For most MBAs, the discount rate IS the rate used in a dicounted cash flow analysis. The NPV is calculated by dicuonting future cash flows using the dicount rate.

I also think it misleading to say later on that you use a rate to calculate IRR. The point of IRR is that you need not assume any rate. The cash flows themselves determine the IRR. That's the point of IRR.

Whaley51 19:06, 24 July 2007 (UTC)


 * Agreed on both points. Particularly on the first; after clicking on the net present value link, the viewer reads that the r in the NPV calculation is the "discount rate".  I will change the page accordingly.  Bjp716 (talk) 20:36, 25 March 2008 (UTC)

Economic policy
An example in the economic policy section would be very helpful. It is not clear to the non-economist (such as myself): What is the government giving a discount rate on? What does this have to do with future changes? Thanks. Noam bergman (talk) 12:00, 18 March 2008 (UTC)

non sequitur
The Economic Policy section is a total non sequitur in this article. It's founded on a definition of discount rate that is not mentioned at all in either the overview or first section of the article. You are gonna confuse a lot of people. —Preceding unsigned comment added by 12.215.181.127 (talk) 00:23, 27 March 2008 (UTC)

Economic Policy?
According to the Economic policy section, higher discount rates mean banks can make more loans. Banks, however, should be most willing to borrow when the rates are low and they can afford more loans. Does the section need some touching up, you think?

Signed by Scryer_360, to lazy to sign in. —Preceding unsigned comment added by 153.91.67.231 (talk) 02:29, 3 April 2008 (UTC)

General Criticism
I think this article is very badly worded and highly confusing. For example in the definitions there is the following: 'the term "discount" does not refer to the meaning of the word'.

The article starts by defining the discount rate as the rate at which central banks lend, and then goes on to say that the word has two different meanings, neither of which relate to central banks.

In my opinion, discount rate can refer to one of the following two related concepts:

1. Some measure of present value of some future outcome, eg. income, profits, etc. One way of measuring this would be to use the current rate of interest to compare current and future income by using the interest rate as the 'discount' factor. Alternatively you might use some subjective 'rate of time preference' to value future consumption for example.

2. The rate at which central banks 'discount' eligible bills. This 'discount rate' is related to the above definition, in that certain eligible institutions are permitted to swap certain eligible paper (up until the credit crunch this meant government bonds and bills, but central banks are currently accepting a much wider range of paper) at a discounted rate. Ie the central bank 'discounts' the expected future income associated with that particular type of paper, and uses this to calculate the amount of cash that it will give to the counterparty institution in exchange for this bill. The (usually published) rate at which a central bank performs these calulations is referred to as 'the discount rate'. The facility through which institutions are able to obtain funds through the discounting of bill in the US is referred to as the 'Discount window', but many other central banks ave in the past or still do operate similar facilities.

Historically this practice evolved out of trading companies accepting the debt of another company as payment instead of cash. When this occurred the accepting company would 'discount' the value of the debt, to make up for the fact that it wasn't receiving immediate paymeny in gold or convertable currency. This eventually led to trade bills becoming acceptable as a form of currency in its own right and circulating in the place of cash. Jomichell (talk) 19:28, 26 November 2008 (UTC)

I agree, the intro is poor and needs re-writing. 93.96.236.8 (talk) 14:58, 4 July 2009 (UTC)


 * I agree, we should re-write intro. According to David Morier Evans (The History of the Commercial Crisis, 1857-58), the term "discount rate" generally refers to the meaning of the word... but not in modern English. In the article, we shoul tell about its historical meaning, and then, about Central Banks of the Present Time. Vugluskr (talk) 08:12, 7 January 2010 (UTC)
 * I did a quick & dirty edit, having "discount rate" refer to 3 meanings, whose relation should be clarified. The article was unintelligible without looking at the talk page.  93.96.236.8's  explanation above should be here or maybe at Discount window.John Z (talk) 16:56, 24 November 2010 (UTC)

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