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Discount Rate—Explanation, Definition and Examples

Valutico

For central banks like the Federal Reserve, it helps control the economy. They set this rate to affect how much money moves through banks and influences short-term interest rates. We are going to focus on how discount rates are used in the context of investment, rather than in the context of central banks.

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Review the concept of WACC

Andrew Stolz

To calculate WACC, the cost of each capital component will be multiplied by its proportional weight. A firm borrows from banks or bondholders and it has to pay the interest. The formula implies the return an investor expects from a risk-free investment plus the return from the stock in relation to market volatility.

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Appraiser Newsroom - Untitled Article

Appraiser Newsroom

Dr. Henry has over 20 years of diverse experience in the fields of business economics, consulting/advisory services, interest rate and market risk modeling, and government affairs. He holds the Chartered Financial Analyst (CFA) designation, administered by the CFA Institute.