Discount rate

(1) The annual percentage rate at which the present value of a future unit of account, is assumed to fall away through time. The rate quantifies the extent to which a sum of money is worth more today than the same amount in a years time.
(2) The generic name for the rate of interest at which the future cash flows of an investment are discounted in order to obtain the net present value of the cash flows. This enables comparisons to be made between different investments.The choice of discount rate should appropriately reflect the risks of the investment/project.
(3) In the USA the interest rate charged by the Federal Reserve to member banks or in Europe the rate at which a central bank is prepared to discount certain bills for financial institutions as a means of easing their liquidity. This is more accurately referred to as the official discount rate. Basically it forms the floor rate for interest rates in the economy.