Discounting

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Discounting

Calculating the present value of a future amount. Discounting is opposite to compounding.

Discounting

The act of determining the present value of future cash flows. Because money is subject to inflation and has the ability to earn interest, one dollar today is worth more than one dollar tomorrow. Discounting, then, is the act of determining how much less tomorrow's dollar is worth. For example, a bank may loan a sum of money and schedule repayments at $100 per month for 10 years. The bank may then discount the value of payments and determine exactly how much (in today's dollars) it will have received once the loan is paid off.

discounting

The appraisal method of computing the value of an income-producing property by calculating the present value of anticipated cash flows.

References in periodicals archive ?
These results suggest that the observed discountings were steeper than objectively optimal to maximize purchasing power.
Again, these results suggest that the observed discountings were steeper than objectively optimal to maximize purchasing power.
Previous studies of delay discounting (Loewenstein & Prelec, 1992; Mazur, 1987; Rachlin, Raineri, & Cross, 1991) have shown that the preference between delayed and immediate rewards is well described either by the following hyperbolic function:
The exponential model applies to the discounting of delayed rewards such as those provided by bank accounts.
Two seemingly more influential economic factors affecting delay discounting are the inflation rate and the nominal interest rate.
Ostaszewski, Green, and Myerson (1998) showed that the subjective discounting rate for Polish zloty was much higher than that for the U.
The nominal interest rate determines the objective discounting of delayed reward if the real interest rate is greater than zero.
But almost every delay discounting experiment has used hypothetical money and therefore it is possible that participants did not consider saving hypothetical money and earning interest from it.
If participants of delay discounting experiments were influenced by inflation rate, it can be said they were under money illusion.
This study uses a computer game-like task to investigate the effects of interest and inflation rates on delay discounting in human behavior.
The purpose of Experiment 1 was to investigate the effect of the inflation rate on delay discounting when the nominal interest rate is constant.