Talk:Discounting/Archives/2015

A "Discount" is a "Charge" paid by someone who wants to delay payment

A "Discount" is a "Charge" that is paid to obtain the right to delay a payment. Essentially, the payer purchases the right to make a given payment in the future instead of in the Present. The "Discount", or "Charge" that must be paid to delay the payment, is simply the difference between what the payment amount would be if it were paid in the present and what the payment amount would be paid if it were paid in the future.

A "Discount Rate" is the rate at which the "Discount" must increase in order to obtain the right to increase the amount of time the payment is delayed. Usually, it is thought that every additional delay is increasingly onerous. As a result, to obtain the right to extend the delay in payment, the increase in the "Discount" must be greater than the increase in the Delay. Therefore, the "Discount Rate" is used to show rate at which the rise in the "Discount" is compounded as the time period associated with the delay in the payment is extended.

Since economic models assume a person can earn a return on money by investing it, the "Discount Rate" is usually considered to be the same as the rate of return the person could receive on invested money. Since an investor earns a return not only on the original principle investment, but also on the earnings made thus far from the original investment, earnings are compounded as time moves forward into the future. Hence, this is usually the justification for having the "Discount" compounded as the time before payment can be received is extended. Simply put:

Investing $P in the Present will yield a profit of $P*(1+r)^t - $P after t time periods (r is the Rate of Return on the investment). As a result, a person must pay a "Discount" of $P*(1+r)^t - $P to obtain the right to delay making a payment to this investor for t periods. Hence, borrowing $P for t periods means the borrower will need to pay the lender $P*(1+r)^t after t time periods to obtain the loan.

Hence, We can also say that $p is the Discounted future payment of $F if $p=$F/(1+r)^t

Could you comment on this? I believe that this is a better explanation of what a Discount is. Thanks.

Please Note that "Discounting" may be different from the "Discount". "Discounting" is a calculation process, where as the "Discount" is the result obtained from the "Discounting" process. Mgmwki (talk) 21:46, 5 November 2008 (UTC)mgmWiki 15:45, 5 Novembr 2008 (UTC) —Preceding unsigned comment added by Mgmwki (talk • contribs)

A "Discount" is a "Charge" that is paid to obtain the right to delay a payment. Essentially, the payer purchases the right to make a given payment in the future instead of in the Present. The "Discount", or "Charge" that must be paid to delay the payment, is simply the difference between what the payment amount would be if it were paid in the present and what the payment amount would be paid if it were paid in the future.

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I have not seen this terminology previously, it may be an accounting term to better reflect P&L adjustments. In banking, the 'right' for a future payment looks like a loan to me. A 'right' is fundamentally a future contract. Such a contract may be priced at par such that reflects the consensus market value of future cash, or with a margin or premium added to earn a profit or account for risk. I suggest the 'charge' as referred to above is commonly called interest - the difference between the absolute total today and in future. The excess over the market rate is 'margin' or 'premium'. I believe the issue here is a crossover between context of accounting and banking/finance usage and thus there is a lot of confusion. I would happily reorganise this page, and clarify the banking context but don't want to tread on anyone's toes

Edmaher (talk) 12:38, 20 January 2011 (UTC)

A "Discount Rate" is the rate at which the "Discount" must increase in order to obtain the right to increase the amount of time the payment is delayed. Usually, it is thought that every additional delay is increasingly onerous. As a result, to obtain the right to extend the delay in payment, the "Discount" must rise faster the length of the Delay. Usually, the "Discount" for any delay is shown by compounding the its growth over time by the "Discount Rate"

Since economic models assume a person can earn a return on money by investing it, the "Discount Rate" is usually considered to be the same as the rate of return the person could receive on invested money. Since an investor earns a return not only on the original principle investment, but also on the earnings made from the original investment, earnings are compounded as time moves forward into the future. Hence, this is usually the justification for having the "Discount" compounded as the time before payment can be received is extended.

Grammer Considerations. Mgmontini (talk) 03:43, 14 November 2008 (UTC)

I will update the page since I see no comments. —Preceding unsigned comment added by Mgmwki (talk • contribs) 21:13, 5 December 2008 (UTC)

Agree with commentary regarding economic model comment. In the article, the term "payment" is flawed in this context, and the inaccuracy is compounded by the limited application. I would say Discounting is a "mechanism to convert the future value of a monetary amount to a present value" No future payment is obliged, expected or anticipated by the definition, discounting, may apply to any requirement to covert future economic values to present values. — Preceding unsigned comment added by Edmaher (talk • contribs) 12:58, 28 August 2015 (UTC)

Antonym

WHAT IS EXACTLY THE ANTONYM OF DISCOUNT?

Discounting is basically reverting the cash flow with a certain rate of interest so that it gives present value of the future cash flow.

-Mayank Gangwal