Discount Factor Formula The discount factor can be calculated using the formula Discount Factor 1 1 r n where r is the discount rate and n is the number of periods What is the relationship between the discount rate and the discount factor
Discount Factor Formula Example 2 1 Daily Note There are 365 days in a year so we must divide the discount rate by 365 and also multiply the period 2 Monthly Note We have used 12 as there are 12 months in a year 3 Quarterly The formula to calculate the discount factor for quarterly The discount factor formula is as follows Discount Factor 1 Discount Rate Period Number Alternatively the formula can also be re arranged to state the following Discount Factor 1 1 Discount Rate Period Number
Discount Factor Formula
Discount Factor Formula
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In case of discrete compounding the discount factor formula is 1 i n n t In the formula i is the Discount rate t is the number of years and n is the number of compounding periods in a year For continuous compounding the formula is The general discount factor formula is Discount Factor 1 1 1 Discount Rate Period Number To use this formula you ll need to find out the periodic interest rate or discount rate This can easily be determined by dividing the annual discount factor interest rate by the total number of payments per year
The discount factor formula is DF 1 1 DR T where DF is the discount factor DR is the discount rate and T is the number of years The discount factor decreases as time progresses reflecting the decreasing value of future cash flows Understanding the discount factor is essential in financial modeling and investment valuation The discount factor is computed through a formula that includes the discount rate and the year or period number for example year 1 to 5 The decimal value of the discount factor gets smaller as we go along from year 1 to 5 due to the effect of compounding that builds over time Discount Factor Formula
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The basic formula for determining this discount factor would then be D 1 1 P N which would read that the discount factor is equal to one divided by the value of one plus the periodic interest rate to the power of the number of payments The formula to calculate the discount factor would look like this Discount Factor 1 Discount Rate Period Number You can even rearrange the formula to look like this Discount Factor 1 1 x 1 Discount Rate Period Number The easiest way to calculate the discount factor with these formulas would be by using Excel
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The discount factor can be calculated using the formula Discount Factor 1 1 r n where r is the discount rate and n is the number of periods What is the relationship between the discount rate and the discount factor
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Discount Factor Formula Example 2 1 Daily Note There are 365 days in a year so we must divide the discount rate by 365 and also multiply the period 2 Monthly Note We have used 12 as there are 12 months in a year 3 Quarterly The formula to calculate the discount factor for quarterly
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Discount Factor Formula - The discount factor is computed through a formula that includes the discount rate and the year or period number for example year 1 to 5 The decimal value of the discount factor gets smaller as we go along from year 1 to 5 due to the effect of compounding that builds over time Discount Factor Formula
