Discount rate

The discount rate is used to calculate how much the expected future income from an investment over a given period of time is worth right now (the net present value), which can help you decide what you should pay for it.

The rate used is usually based on the risk-free rate – the annual return you could expect to get on your money if you put it in the bank, or into a safe investment, such as UK government bonds over the same period. For example. if you are using a 5% discount rate, then £105 in a year’s time is worth the same as £100 today.

The riskier the investment, the higher the discount rate you should apply – after all, you expect to get higher return from a risky investment than for putting your money in the bank.

MoneyWeek magazine

Latest issue:

Magazine cover
In the balance

How May 2015 could hit your pocket

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 4 FREE Issues

Russell Napier: deflation is coming – hold on to your cash

Financial historian Russell Napier talks to Merryn Somerset Webb about the next deflationary bust – why it's coming, what it means for you, and how you can survive it.


Which investment platform?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from. They all offer various fee structures to suit individual investing habits.
Find out which one is best for you.


28 November 1660: the Royal Society is founded

After the restoration of the monarchy, members of the 'Invisible College' asked King Charles II to approve their scientific and literary society on this day in 1660.