A discount rate is a percentage used in financial calculations to determine the present value of a future sum of money. For instance, if you expect to receive $100 in a year and the discount rate is 5%, the present value of that $100 is $95.24.
Discount rates are essential in evaluating investments and financial decisions. They allow investors to compare the value of future cash flows to current investments. Historically, central banks have influenced discount rates to manage inflation and economic growth.