Cost-benefit analysis (which puts a discount rate on the future, and measures in dollars and cents) is wicked.
The interest rate allows me to discount the value of some cash payment in the future to the value the principle would hold for me if I had it now.
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But other marketing systems the hotel uses may not have known about your stay and sent you a pre-scheduled discount for a future visit at the same time.
The problem lies in the uncertainty surrounding both its components: the future stream of dividends and the appropriate discount rate.
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If shares change in value, that must reflect a change in investors' assessment of either the prospective dividend flow (for example, because of fears about the future level of profits) or the right discount rate (for example, because of a change in inflationary prospects or in long-term real interest rates), or both.
But the specific way that public pensions discount liabilities causes them to underestimate the present cost of paying future benefits.
Of course, the fact that college officials are willing to offer a discount on future tuition shows they believe they can earn more on investments than the increase in tuition.
As a result the most important variables to the price of an asset are the level and future shape of free cash flows, and the discount rate used, which, as you rightly point out, can be analysed in terms of risk premium.
Operating under guidance from the Government Accounting Standards Board, public plans discount future liabilities at a rate equal to their expected return on assets--which, for the 59 plans in our study, was typically close to 8%.
We are trying, with all our discount rates and studies and concerns for the future, to maximise human utility over time.
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"My first priorities are to regain the respect of our shareholders by eliminating the discount in our share price and to find the very best leader to be our future chief executive, " he added.
First, the farther into the future are the transfers you will receive, the more you should discount it.
At least, the stock cannot discount too much of an uncertain future.
Economists worry about the appropriate discount rate, if any, to apply when assessing the seriousness of low-probability far-future catastrophes of very large scale.
Crucially, it states that the present value of future liabilities must be calculated by using the yield on long gilts as a discount rate.
"Pushing costly, unpleasant tasks into the future is like a getting a 50 percent discount on them, psychologically, " Laibson said.
It calculates an intrinsic value by discounting a stream of future earnings back to the present, using a discount rate that is a function of both Aaa bond yields and the creditworthiness of the target company.
When pension funds calculate the value of their liabilities, they therefore use a bond yield to discount future payments.
Hence the flutter of speculation about Mr Karmazin's future, not least by investors keen to eliminate the share-price discount that the uncertainty periodically creates.
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