What is a discount rate?
Similar to ROI, discount rate can have several meanings. Well try to keep the answer simple. There are three common meanings of the term: 1. potential rate of return from alternative investments, 2. the rate an organization pays for borrowed money (the “cost of capital”), and 3. a “hurdle” rate that an IT project must clear before it will be considered before an organization will consider an investment. • Alternative Investments. In theory, an organization can “invest” money in your project or it can invest money in something else. Sometimes, the “discount rate” represents the assumed rate of return on alternative investments. • Cost of Capital. Many organizations borrow money to invest in capital projects. Sometimes, the discount rate used is the organizations typical interest cost on the money it borrows. • “Hurdle Rate”. IT projects can be risky investments (i.e., they may not deliver the expected benefits). Sometimes, organizations use the “discount rate” to establish a minimum rat
Credit cards typically charge a percentage of the sale for use, this amount is referred to as a discount rate. The rate paid by the merchant may vary depending on the monthly sales volume, the average sale size, and whether a transaction is processed manually or electronically. Other factors involved include qualified and non-qualified purchases. Certain conditions must be met for an Internet transaction to Qualify for a discount rate. If a transaction doesn’t Qualify, it becomes a Non-Qualified transaction and the discount rate will increase due to increased RISK. Depending on your choice of CC processor, these conditions will differ.
A discount rate is an interest rate that is used to “discount” the value of future expected payments to present value. In effect, a discount rate removes the future interest that a present value sum would earn until a future payment would be expected. If a stream of future payments of $1,000 per year for ten years is “discounted” to present value, the value will be significantly less than $10,000. If that present value is invested in securities with an interest rate that is used as the discount rate, the fund will make scheduled payments, but attract interest on the remaining balance. Over the term of the stream of future payments, the accumulation of interest at the discount rate will provide the fund with monies needed to make all scheduled payments.
A Discount Rate is the percentage of the transaction amount that the merchant (you) pays for the privilege of having the credit card network process your payment. So if your Discount Rate was 2% and a customer paid you $50, you would pay the merchant account provider $1 for that transaction. Well, you will really pay more than that because they are also going to charge you a Transaction Fee.
