ACCA Financial Management (F9) Certification Practice Exam

The term "discount" in financial terms primarily refers to a reduction in price. This concept applies to various situations, including sales promotions, where the selling price of a product or service is lowered to encourage purchases. Discounts can be expressed in various ways, such as percentage reductions off the original price or specific monetary amounts taken off.

In finance, discounts also have a particular significance in the context of present value calculations. For instance, when determining the present value of future cash flows, a discount rate is applied to account for the time value of money, reflecting the principle that a certain amount of money today has a higher value than the same amount in the future.

When looking at the other options, an increase in risk pertains to the uncertainties associated with an investment, a rate of return involves the gain or loss made on an investment relative to its cost, and sales tax deductions concern tax calculations rather than price reductions. Thus, the financial term most closely aligned with "discount" is a reduction in price.