Discount rate

If I lowered the discount rate, if this discount rate is

And the discount rate is this.

They kind of increase or decrease at the same rate.

The present value would be if you discount this by some discount rate.

You can tweak that discount rate and make a few assumptions in discount rate and pretty much assume anything.

The discount rate assumption is everything in finance.

Then to discount money in the future to the present, we divide it by 1 plus the discount rate so this is a 5 discount rate.

What happens if I assume a 2 discount rate?

What is the present value of these if I assume a 2 risk free rate, or a 2 discount rate?

But right now, for simplification, we're assuming a risk free discount rate.

So the same thing is true when you're doing a discount rate.

And this discount rate, this is where all of the fudge factor occurs in finance.

And actually the whole topic of, how do you decide on the right discount rate?

So it benefited the most by decreasing the discount rate, the 1.02 squared.

Now at a 2 discount rate, choice number two is all of a sudden the best.

Well, when you lower the interest rate, the terms that are using that discount rate the most, benefit the most.

35 divided by and it's 2 years out, so we discount by our discount rate twice so it's divided by 1.05 squared.

But you can almost justify any present value, by picking the right discount rate.

Another way to kind of just talk about this is to get the present value of 110 a year from now, we discount the value by a discount rate.

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But in scenario one, because we used a 5 discount rate for all you could say, I don't want to use fancy words but for all durations out we used a 5 discount rate.

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