Discount rate

The probability of reaching S prime given that we started state S and apply action A.

And it just depended on how the mathematics work out.

Another way to kind of just talk about this is to get the present value of 110 a year from now, we discount the value by a discount rate.

If I could get it for 90, that's a good deal for me.

Then to discount money in the future to the present, we divide it by 1 plus the discount rate so this is a 5 discount rate.

That's really important for now, just for this one quiz.

We saw that choice number one was the best.

This is the difference between the two.

It's all assumption driven.

What you have already is a very powerful tool.

We have agreed on the rate of discount.

And this is scenario three.

But you can almost justify any present value, by picking the right discount rate.

But let's generalize even more.

Now what can we do ?

We have agreed on the rate of discount.

Anyway.

So once again we have verified, by taking the present value of 110 in 2 years to today, that its present value if we assume a 5 discount rate.

So you want to divide it by, let's say we use 11 as a discount rate.

Then we get the Q value of 100 minus the Q value of zero, and the discount rate is 90.

And frankly, what we're learning here is a discounted cash flow.

60 off.

But the big learning from this is how dependent the present value of future payments are on your discount rate assumption.

So why is that?

These are 30 percent off.

when the sale has a certain percentage ?

lower, it might have changed the outcomes.

They had to raise the stated dropout rate as soon as that tracking was done to over 30 percent.

We could have also done it other way.

Because this is what all of our present values and our discounted cash flow, this type of dividing by 1 plus the discount rate to the power of however many years out, this is what all of that's based on.

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Well, I don't give group rates, you know.

Now another interesting caveat is a sentence people put a so called discount factor into this equation with an exponent of T, where a discount factor was going to be 0.9, and what this does is it decays future reward relative to more immediate rewards, and it's kind of an alternative way to specify costs.

Now what happens after I pose the question, you might want to think about it before I show you the answer what happens if I don't assume a 5 discount rate?

Add that together with the gas, and it's 112,000 per year, just for that sign in each direction.

Let's say in every year it's going to make 1.

We could have said Let y equal the discount

5 minus this 2.

Thirty percent off for USC alumni.

So all of this payment was two years out, right?

And this discount rate, this is where all of the fudge factor occurs in finance.

Divide CPU usage by number of CPUs

Time the probability of two sided coin.

Do you have a student fare?