Discount Rate

When you cast this fee as a percentage, it effectively becomes an "interest rate," called the discount rate (in the example above, it would be 25 percent, since $80 x 125% = $100). Like any interest rate, it can compound, but instead of compounding positively as we discussed earlier, the discount rate compounds negatively. This negative compounding discounts payments out into the future more and more, since you won't be able to access them until much later.