Calculating the annual discount rate in Excel involves determining the percentage used to convert future cash flows to their present value. For instance, a $100 cash flow in 10 years, assuming a 5% annual discount rate, has a present value of approximately $61.39.
Understanding and applying this technique is crucial for financial decision-making, as it helps evaluate the time value of money and the impact of inflation. Historically, discount rates have been influenced by factors such as economic growth, interest rates, and market volatility.