how do you choose the appropriate discount rate 
the discount rate used depends on the type of analysis undertaken when considering an investment the investor should use the opportunity cost of putting their money to work elsewhere as an appropriate discount rate that is the rate of return that the investor could earn in the marketplace on an investment of comparable size and risk a business can choose the most appropriate of several discount rates this might be an opportunity cost based discount rate its weighted average cost of capital or the historical average returns of a similar project in some cases using the risk free rate may be most appropriate the bottom linethe discount rate is the lending rate at the federal reserve s discount window where banks can get a loan if they can t secure funding from another bank on the market a discount rate is also calculated to make business or investing decisions using the discounted cash flow model 