# 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 ?
The curved lines represent hyperbolic discounting functions (Equation 1), fitted to the median data of deflationary (k = 0.021, [R.sup.2] = 0.146), zero-inflationary (k = 0.021, [R.sup.2] = 0.408), and inflationary (k = 0.037, [R.sup.2] < 0) conditions.
The areas under the curve for objective discounting, calculated from the exponential discounting curve, are 0.616 for the inflationary condition, 0.715 for the zero-inflationary condition, and 0.84 for the deflationary condition.
These results suggest that different combinations of nominal interest and inflation rates yielding the same real interest rate have an effect on the discounting of delayed rewards, but that the effect is not strong.
The results of the three experiments suggest that the subjective discounting of delayed rewards is strongly affected both by inflation and interest rates.
The nominal interest rate also affected delay discounting (Experiment 2).
Different combinations of inflation and nominal interest rates that yielded the same real interest rate also had some effect on delay discounting (Experiment 3).
The results of this study have implications for the relationship between individual discounting and market discounting.
The present results, however, show that individual subjective discounting is also affected by macroeconomic factors (interest and inflation rates).
Thus, the results of delay discounting experiments from different countries and times should not be compared lightly; neglecting macroeconomic factors may yield misleading conclusions regarding the behavior of participants.
Moreover, the term structure of subjective discounting is different from that of market discounting.
Macroeconomic factors only affect some parameters and outcomes in delay discounting experiments.
In the experiments conducted for this study, delay length and the indirect relation between the rewards provided and actual Japanese yen payments may limit the degree to which the delay discounting behavior observed can be generalized.

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