Question

In your view, what is the appropriate rate of discount for regulatory policies? Suppose that the measure is the real rate of return to capital. How would you measure this? If a group of economists were given the task, to you believe they would all arrive at the same answer? why might there be differences in the discount rate estimate?

Answer 1

Discount rate refers to the minimum amount or rate set by the US federal reserve or other national banks of US at which the money will be lent. Discount rate is generally given after taking cost benefit analysis into consideration. And the discount rate for a regulatory shall be set around 8-15%. The reason behind it is that it is a reasonable rate because it helps in getting the NPV a positive number. The discount rate will be calculated hy taking into account the current and past exonomic trends and measuring and analysing the cash flows which enable each economist to come up with a different discount rate. The role of calculating the discount rate is to arrove at a positive NPV. There will or might not be a single discount rate set by all the economists and thus there might be some conflicts. These conflicts might happen because each expnomists view of economic trends is different then the other and analysis of cash flow is also different which makes them arriving at some different values of PV or present value of cash flows.