Which variable in the present value formula represents the discount rate?

In the present value formula, the variable that represents the discount rate is indeed indicated by 'r'. The present value formula is generally expressed as:

[ PV = \frac{FV}{(1 + r)^n} ]

In this formula, PV stands for the present value, FV represents the future value, and 'n' is the number of periods until the future value is realized. The discount rate 'r' is a crucial component because it reflects the time value of money, indicating how much the value of money decreases over time due to factors like inflation, opportunity cost, and risk.

Understanding the discount rate is essential for financial decision-making, as it is used to determine how much future cash flows are worth in today's terms. A higher discount rate implies a lower present value, highlighting the sensitivity of present value to changes in the rate.