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To: Thomas M. who wrote (116)3/29/2001 11:42:56 PM
From: JF Quinnelly   of 443
 
As in "discounting paper"?

If interest rates were 10% per year, what would the "present value" of a $1,000 bond be? About $910. That's a type of "discounting".

Banks "discount paper" from other lenders by paying a sum for receipts, mortgages, debt obligations, etc, that gives them a yield they're willing to accept. As a business, you might have a bunch of time-payment contracts from your customers. You could take these to a bank, and they would "discount" this paper by offering you a sum for them- maybe they would offer you a sum that would give them an 18% yield at maturity for taking on the risk.
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