The discount rate is a crucial financial concept, referring to the interest rate used to determine the present value of future cash flows. It plays a vital role in investment appraisal, capital budgeting, and financial planning.
The importance of the discount rate stems from its influence on investment decisions. It helps determine whether an investment is financially viable by comparing its future benefits with its present costs. Historically, the discount rate has been influenced by factors such as inflation, interest rates, and economic growth.