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Explain what discount rates are used for and how you might interpret them

Explain what discount rates are used for and how you might interpret them

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Answer - The discount rate is used for converting the present value of the cash flows into the future value of cashflows or the expenses and vice a versa.

The present value of is greater than the value of money in the future. In other words , the value of money declines in future with time. This may be due to the rates of inflation in the economy. Hence to adjust the cashflows or the expenses as per the rates of inflation and time , discount rates are used . This is the most important elements of time value of money

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