The discount rate formula is a critical tool used in finance to determine the present value of future cash flows. It is calculated by adjusting a nominal interest rate for the expected rate of inflation.
The formula is relevant because it allows investors and businesses to make informed decisions about investments, capital budgeting, and financial planning. It is also essential in evaluating the viability of projects and determining the appropriate cost of capital. Historically, the concept of discounting cash flows has been attributed to the mathematician and astronomer Edmund Halley in the 17th century.