discount

1. To deduct or subtract from a cost or price.
2. 1. To purchase or sell (a bill, note, or other commercial paper) at a reduction equal to the amount of interest that will accumulate before it matures.
   2. To lend money on (a commercial paper not immediately payable) after deducting the interest.
3. 1. To sell or offer for sale at a reduced price.
   2. To reduce in quantity or value.
4. 1. To leave out of account as being untrustworthy or exaggerated; disregard: discount a rumor.
   2. To underestimate the significance or effectiveness of; minimize: took care not to discount his wife's accomplishments.
   3. To regard with doubt or disbelief.
5. To anticipate and make allowance for; reckon with in advance.

To lend money after deduction of interest.

1. A reduction from the full or standard amount of a price or debt.
2. The interest deducted prior to purchasing, selling, or lending a commercial paper; the discount rate.
3. The act or an instance of discounting a bill of exchange, note, or other commercial paper.

[Alteration (influenced by DIS– and COUNT¹) of French décompter, from Old French desconter : des-, away; see dis– + conter, to count; see count¹.]

Reduced price from a stated rate or list price, usually offered to a customer as an incentive to make a purchase. There are many different kinds of commercial discounts, but generally they fall into four categories: (1) trade-given to intermediaries in exchange for services they perform (such as storage or handling); (2) quantity-given to encourage bulk purchasing, whether in product or service, or in time or space; (3) incentive-given to encourage payment within a specific time period (for example, 2% off the bill if payment is made within 10 days); (4) seasonal-given to help level the production and marketing workload on seasonal merchandise (such as bathing suits, lawn furniture, gardening tools, or Christmas items) when the merchandise is out-of-season. Some discounts are offered in reaction to competitive advertising, as when a soda company offers increased volume discounts to retailers in response to a competitor's challenge campaign. Additionally, many gasoline companies offer discounts to consumers who pay with cash instead of credit cards.

1. Bank loan with interest deducted from the face amount of the note when the credit is extended. Generally used only for short-maturity business loans. The borrower repays the full amount indicated on the note.

2. Price difference between a bond's current market price and its stated Par Value, when the market price is lower.

3. Bank Discount Rate or a bank's quoted price when it accepts payment liability for a bill of exchange, which then becomes a Banker's Acceptance.

4. Treasury Department's method of issuing U.S. Treasury bills at less than face value, with redemption at par at maturity. The discount on the bill represents interest.

5. Price difference between two currencies, when one is trading at less than par value in relation to another currency.

6. Fee charged by a bank for processing and crediting credit card receivables to a merchant's bank account.

7. Cash Discount offered by merchants for payment in cash. See also Deep Discount; Merchant Discount Rate.

The difference between the Face Amount of an obligation and the amount advanced or received.
Example: Abel sells land for $100,000 and receives a $60,000 mortgage at 7% interest as part of the payment. Abel then sells the mortgage (the right to collect payments on the mortgage) at a $15,000 discount, thereby receiving $45,000.

verb

1. To take away (a quantity) from another quantity: abate, deduct, rebate, subtract, take (off). Informal knock off. See increase/decrease.
2. To think, represent, or speak of as small or unimportant: belittle, decry, denigrate, deprecate, depreciate, derogate, detract, disparage, downgrade, minimize, run down, slight, talk down. Idioms: makelightlittleof. See attack/defend, show/hide.

noun

An amount deducted: abatement, deduction, rebate, reduction. See increase/decrease.

Definition: reduction in cost
Antonyms: increase, mark-up, premium, rise

v

Definition: ignore; treat as insignificant
Antonyms: attend, pay attention, recognize

v

Definition: lower, reduce cost
Antonyms: increase, mark up, raise

1. an allowance or deduction made from a gross sum. v 2. to reduce the amount of a professional fee.

A deduction from a specified sum. Often used in connection with transactions in negotiable commercial paper in which the buyer purchases an instrument due at a future date at a price below its face amount with the intention of ultimately collecting the full value of the instrument. Sellers offer instruments at a discount because of an immediate need for cash or out of a fear of never being able to collect on them. "To discount" in finance is to purchase or pay an amount in cash less a certain percent, as on a promissory note which is to be collected by discounter or purchaser at maturity. 117 So. 124, 126.

Discount is the difference between the price and the amount of the debt, the evidence of which is transferred. 14 Ill. App. 566, 570.

For the band of the same name, see Discount (band).

See also: Discounts and allowances

It has been suggested that this article or section be merged with discounted cash flow. (Discuss)

Discounting is a financial mechanism in which a debtor obtains the right to delay payments to a creditor, for a defined period of time, in exchange for a charge or fee.^[1] Essentially, the party that owes money in the present purchases the right to delay the payment until some future date.^[2] The discount, or charge, is simply the difference between the original amount owed in the present and the amount that has to be paid in the future to settle the debt.^[1]

The discount is usually associated with a discount rate, which is also called the discount yield.^{[1] [3][1][2]}. The discount yield is simply the proportional share of the initial amount owed (initial liability) that must be paid to delay payment for 1 year.

Discount Yield  =  "Charge" to Delay Payment for 1 year  /  Debt Liability

It is also the rate at which the amount owed must rise to delay payment for 1 year.

Since a person can earn a return on money invested over some period of time, most economic and financial models assume the "Discount Yield" is the same as the Rate of Return the person could receive by investing this money elsewhere (in assets of similar risk) over the given period of time covered by the delay in payment.^[2][1] The Concept is associated with the Opportunity Cost of not having use of the money for the period of time covered by the delay in payment. The relationship between the "Discount Yield" and the Rate of Return on other financial assets is usually discussed in such economic and financial theories involving the inter-relation between various Market Prices, and the achievement of Pareto Optimality through the operations in the Capitalistic Price Mechanism^[2], as well as in the discussion of the "Efficient (Financial) Market Hypothesis".^[2][1][4] The person delaying the payment of the current Liability is essentially compensating the person to whom he/she owes money for the lost revenue that could be earned from an investment during the time period covered by the delay in payment.^[1] Accordingly, it is the relevant "Discount Yield" that determines the "Discount", and not the other way around.

As indicated, the Rate of Return is usually calculated in accordance to an annual return on investment. Since an investor earns a return on the original principle amount of the investment as well as on any prior period Investment income, investment earnings are "compounded" as time advances.^[1][2] Therefore, considering the fact that the "Discount" must match the benefits obtained from a similar Investment Asset, the "Discount Yield" must be used within the same compounding mechanism to negotiate an increase in the size of the "Discount" whenever the time period the payment is delayed is extended.^[2][4] The “Discount Rate” is the rate at which the “Discount” must grow as the delay in payment is extended.^[5] This fact is directly tied into the "Time Value of Money" and its calculations.^[1]

The "Time Value of Money" indicates there is a difference between the "Future Value" of a payment and the "Present Value" of the same payment. The Rate of Return on investment should be the dominent factor in evaluating the market's assessment of the difference between the "Future Value" and the "Present Value" of a payment; and it is the Market's assessment that counts the most.^[4] Therefore, the "Discount Yield", which is predetermined by a related Return on Investment that is found in the financial markets, is what is used within the "Time Value of Money" calculations to determine the "Discount" required to delay payment of a financial liability for a given period of time.

BASIC CALCULATION

If we consider the value of the original payment presently due to be $P, and the debtor wants to delay the payment for t years, then an r% Market Rate of Return on a similar Investment Assets means the "Future Value" of $P is $P * (1 + r%)^t  [2][5], and the "Discount" would be calculated as

Discount = $P * (1+r%)^t - $P  ^[2]

where r% is also the "Discount Yield".

If $F is a payment that will be made t years in the future, then the "Present Value" of this Payment, also called the "Discounted Value" of the payment, is

$P = $F / (1+r%)^t   [2]

Contents 1 Example 2 Discount rate 3 Discount factor 4 Other discounts 5 See also 5.1 Lists 6 References 7 External links

Example

To calculate the present value of a single cash flow, it is divided by one plus the interest rate for each period of time that will pass. This is expressed mathematically as raising the divisor to the power of the number of units of time.

Consider the task to find the present value PV of $100 that will be received in five years. Or equivalently, which amount of money today will grow to $100 in five years when subject to a constant discount rate?

Assuming a 12% per year interest rate it follows

Discount rate

The discount rate which is used in financial calculations is usually chosen to be equal to the Cost of Capital. The Cost of Capital, in a financial market equilibrium, will be the same as the Market Rate of Return on the financial asset mixture the firm uses to finance capital investment. Some adjustment may be made to the discount rate to take account of risks associated with uncertain cash flows, with other developments.

The discount rates typically applied to different types of companies show significant differences:

• Startups seeking money: 50 – 100 %
• Early Startups: 40 – 60 %
• Late Startups: 30 – 50%
• Mature Companies: 10 – 25%

Reason for high discount rates for startups:

• Reduced marketability of ownerships because stocks are not traded publicly.
• Limited number of investors willing to invest.
• Startups face high risks.
• Over optimistic forecasts by enthusiastic founders.

One method that looks into a correct discount rate is the capital asset pricing model. This model takes in account three variables that make up the discount rate:

1. Risk Free Rate: The percentage of return generated by investing in risk free securities such as government bonds.

2. Beta: The measurement of how a company’s stock price reacts to a change in the market. A beta higher than 1 means that a change in share price is exaggerated compared to the rest of shares in the same market. A beta less than 1 means that the share is stable and not very responsive to changes in the market. Less than 0 means that a share is moving in the opposite of the market change.

3. Equity Market Risk Premium: The return on investment that investors require above the risk free rate.

Discount rate= risk free rate + beta*(equity market risk premium)

Discount factor

The discount factor, P(T), is the number which a future cash flow, to be received at time T, must be multiplied by in order to obtain the current present value. Thus, a fixed annually compounded discount rate is

For fixed continuously compounded discount rate we have

Other discounts

For discounts in marketing, see discounts and allowances, sales promotion, and pricing.

See also

• Coupon (bond)
• Hyperbolic discounting
• Coupon

Lists

• List of marketing topics
• List of management topics
• List of economics topics
• List of accounting topics
• List of finance topics

References

1. ^ ^{a b c d e f g h i}

   See "Time Value", "Discount", "Discount Yield", "Compound Interest", "Efficient Market", "Market Value", "Opportunity Cost":

   J. Downes, J.E. Goodman, "Dictionary of Finance & Investment Terms", Baron's Financial Guides, 2003.
2. ^ ^{a b c d e f g h i j}

   See "Discount", "Compound Interest", "Efficient Markets Hypothesis", "Efficient Resource Allocation", "Pareto-Optimality", "Price" & "Price Mechanism", "Efficient Market":

   John Black, "Oxford Dictionary of Economics", Oxford University Press, 2002.
3. ^ Here, the discount rate is different from the Discount Rate the nation's Central Bank charges financial institutions.
4. ^ ^{a b c}    Competition from other firms who offer other Financial Assets that promise the Market Rate of Return forces the person who is asking for a delay in payment to offer a "Discount Yield" that is the same as the Market Rate of Return.
5. ^ ^{a b} Alpha C Chiang, "Fundamental Methods of Mathematical Economics, Third Edition", McGraw Hill Book Company, 1984.

External links

Look up discounting in Wiktionary, the free dictionary.

• Tutorial on Discount Mathematics

This entry is from Wikipedia, the leading user-contributed encyclopedia. It may not have been reviewed by professional editors (see full disclaimer)

Dansk (Danish)
n. - rabat, rabatgivning, nedvurderet, diskonto, discount-
v. tr. - se bort fra, tage forholdsregler mod, trække fra, give nedslag på, diskontere
v. intr. - diskontere

idioms:

• discount house    diskontobank
• discount rate    diskontosats
• discount store    lavprisvarehus

Nederlands (Dutch)
korting, disconto(voet), korting geven, buiten beschouwing laten, goedkoper maken, afprijzen

Français (French)
n. - rabais, remise, escompte, ristourne, décote, déport, (Fin) en perte, (fig) mal coté
v. tr. - faire une remise, escompter, prendre à l'escompte, (fig) ne pas tenir compte de
v. intr. - (Fin) acheter/vendre (une lettre de change avant l'échéance), emprunter de l'argent (après les déductions effectuées), vendre au rabais

idioms:

• discount house    magasin de vente au rabais
• discount rate    taux d'escompte
• discount store    magasin de vente au rabais

Deutsch (German)
n. - Rabatt, Nachlaß, (econ.) Diskont
v. - abtun, abziehen, diskontieren

idioms:

• discount house    Discountladen
• discount rate    Diskontsatz
• discount store    Discountladen

Ελληνική (Greek)
n. - έκπτωση (κν. σκόντο), προεξόφληση, υφαίρεση
v. - περιφρονώ, δεν πιστεύω, απορρίπτω (ιδέα, εισήγηση κ.λπ.), αποκλείω, (οικον.) προεξοφλώ, παραχωρώ έκπτωση, κάνω σκόντο, αγνοώ

idioms:

• discount house    (οικον.) προεξοφλητικός οίκος, (ΗΠΑ) κατάστημα με χαμηλές τιμές
• discount rate    (οικον.) προεξοφλητικό επιτόκιο
• discount store    κατάστημα με χαμηλές τιμές

Italiano (Italian)
sconto

idioms:

• discount house/store    centro svendite

Português (Portuguese)
n. - desconto (m)
v. - descontar, desprezar, diminuir

idioms:

• discount house/store    loja (f) que vende com desconto
• discount rate    taxa (f) de desconto

Русский (Russian)
скидка, дисконт

idioms:

• discount house/store    магазин уцененных товаров
• discount rate    учетная ставка

Español (Spanish)
n. - descuento, rebaja
v. tr. - descontar, rebajar
v. intr. - descontar, rebajar

idioms:

• discount house    tienda que vende artículos a precio reducido
• discount rate    tasa de descuento, tipo de descuento
• discount store    tienda que vende artículos a precio reducido

Svenska (Swedish)
n. - rabatt, ekon. diskonto
v. - dra av, ekon. diskontera

中文（简体）(Chinese (Simplified))
折扣, 贴现率, 打折扣, 打折扣出售商品, 贴现

idioms:

• discount house    廉价商店, 票据贴现所
• discount rate    贴现率
• discount store    减价商店

中文（繁體）(Chinese (Traditional))
n. - 折扣, 貼現率
v. tr. - 打折扣
v. intr. - 打折扣出售商品, 貼現

idioms:

• discount house    廉價商店, 票據貼現所
• discount rate    貼現率
• discount store    減價商店

한국어 (Korean)
n. - 할인
v. tr. - 깎다, 저하시키다, (어음을) 할인 매입, 매출하다
v. intr. - 저하되다, 깎이다

日本語 (Japanese)
n. - 割引
v. - 割引する, 割引して売る, 割り引いて聞く, 価値を減ずる

idioms:

• discount house/store    割引商会, 安売り店
• discount rate    手形割引歩合, 公定歩合

العربيه (Arabic)
‏(الاسم) خصم, حسم, المبلغ المخصوم (فعل) يخصم, يقلل من أهميه شئ أو مصداقيته‏

עברית (Hebrew)
n. - ‮הפחתה מסכומו של שטר-חוב תמורת תשלום מוקדם, ניכיון, הנחה‬
v. tr. - ‮ניכה שטר, ניכה, פיקפק בנכונות, זלזל‬
v. intr. - ‮פיקפק בנכונות, זלזל‬

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