capitalization rate: 1. The rate used in a present value analysis to determine the value of a payment stream. The capitalization rate is used along with the number of periods, payment per period and future value of the payment stream to calculate the present value. 2. If we create a private currency, that is designed to hold a constant level of purchasing power over time; then we would use the rate of inflation (or deflation) as the capitalization rate to confirm that the present value of the assets securing the currency are equal to the indexed value of the currency issued and outstanding. We call this the present value test.