How to Choose a Discount Rate
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Editorial verification: Examples on this page are checked against FutureCalc core formulas before publish. Source: cross-checked with OpenStax TVM basics and Investor.gov investing basics.
Personal finance shortcuts
For safe cash flows, start near high-quality bond yields. For equity-like risk, use expected portfolio returns from your investment policy. Then run scenarios in the present value calculator and NPV calculator.
Business intuition (WACC)
Firms blend after-tax debt cost and equity required return. You do not need a full WACC model for household decisions — you do need consistency between risk and rate.
Common mistakes
- Using a bank APY to discount risky startup cash flows
- Ignoring inflation (mix real cash flows with nominal rates)
- Changing the rate after seeing the answer