Name Muhammad Israr

Reg : FA19-CVE-042
Subject: Engr.Economics
Paper: Assignment
Instructor: Dr.Hassan Ashraf
Date: 5-9-2021

Discount Rate:

 The discount rate is the interest rate charged to

commercial banks and other financial institutions for
short-term loans they take from the Federal
Reserve Bank.
 The discount rate refers to the interest rate used
in discounted cash flow (DCF) analysis to determine
the present value of future cash flows. 

Interest Rate:
The interest rate is the amount taken from the borrower
by the lender for the service they have provided. But the
Interest rate is dependent on the effective rate of
interest. The interest rate foists on an individual for
personal use or corporates for public usage.

 The basis of Interest Rate Discount Rate

comparison 

Meaning An interest rate is an Discount Rate is the

amount charged by a interest rate that the

lender to a borrower Federal Reserve Banks

 for the use of assets. charges to the

depository institutions

and to commercial

banks on its overnight

loans.

Charged on Individuals/ Borrowers Depository

institutions/

Commercial banks

Rates are Decided by Commercial banks Central Banks

Dependency Depend on a number Not determined by the

of factors such as market rate of

Borrower’s interest, is decided by

creditworthiness, the the central banks.

risk associated with

lending and market

rate of interest.

Usage Cannot be used in Can be used in

determining present determining the

 value. present value of the

future cash flows.

Perspective  Based on the Market  Focusing on the

and focusing on the Investor’s point of

Lender’s point of View View

Economies Affected by Demand Not Affected by

and supply in supply in Demand and supply in

the economy. supply in the

economy.

MARR:
The hurdle rate, also called the minimum acceptable rate of
return, is the lowest rate of return that the project must earn
in order to offset the costs of the investment.

Projects are also evaluated by discounting future cash flows

to the present by the hurdle rate in order to calculate the net
present value (NPV), which represents the difference
between the present value of cash inflows and the present
value of cash outflows.

Generally, the hurdle rate is equal to the company's costs of

capital, which is a combination of the cost of equity and
the cost of debt. Managers typically raise the hurdle rate for
riskier projects or when the company is comparing multiple
investment opportunities.

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