Calculating a discount rate is crucial in finance; it represents the rate at which future cash flows are discounted to calculate their present value. The Capital Asset Pricing Model (CAPM) is a widely used approach to determine this rate.
CAPM is used by investors, analysts, and businesses to estimate the cost of capital for an individual security or project. It incorporates factors such as the risk-free rate, the market risk premium, and the beta of the security or project in question.