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Discount factor formula

discount factor formula

1/ e r*n 1/EXP(r*n) P to F (F/P,r,n) e r*n EXP(r*n) F to A (A/F,r,n) ( e r-1 e r*n-1) (EXP(r)-1 EXP(r*n)-1) A to F (F/A,r,n) ( e r*n-1 e r-1) (EXP(r*n)-1 EXP(r)-1) P to A (A/P,r,n). The discounting principle states that if we want to have F in n years, we need to invest P right now. Discount Factor Table for Discrete Compounding The following table lists discount factors used for conversions between common discrete cash flow series, present value, future worth, etc. Uniform Series Cash Flow (the same payment amount A from t1 to tn) Fig. Discount Factors for Continuous Compounding Continuous compounding is not exactly the same as daily compounding.

The discount factor table below provides both the mathematical formulas and the Excel functions used to convert between present value (P future worth (F uniform gradient amount (G and uniform series or annuity amount (A). The exact discount factor formulas for continuous compounding are given in the table below (where n is the number of years and r is the nominal annual rate). So, discounting is basically just the inverse of compounding: PF 1i)-n. To determine the discount rate for monthly periods with semi-annual compounding, set k2 and p12. Advertisement, what is a Discount Factor? In the past, it was common to refer to a discount factor table to look up the number needed to perform a time value of money conversion.

If only a nominal interest rate ( rate per annum or rate per year ) is known, you can calculate the discount rate using the following formula: where r nominal annual interest rate k number of compounding periods per year p number of periods per. Exponential Gradient Series Cash Flow (g might be the inflation rate for example) Discount Rate The Discount Rate, i, used in the discount factor formulas is the effective rate per period. Example: To convert F to P, multiply F by the discount factor (P/F,i,n).

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You may want to consult with a qualified professional regarding financial decisions. Present Value ( single payment cash flow at t0 fig. Note that the discount factor for F to P is just the inverse (1/x) of the factor for P. Nomenclature i Discount Rate (effective rate per period) n Number of Periods P Present Worth F Future Worth A Uniform Series Amount (or "Annuity G Uniform Gradient Amount Convert Symbol Discount Factor Formula Discount Factor Formula in Excel P to F (F/P,i,n) (1i)n FV(i,n,0,-1). The discount formula can be written as PF P/F,i,n where (P/F,i,n) is the symbol used to define the discount factor. Replace the discount factor symbols (P/G,i,n (F/P,i,n) and (A/P,i,n) with the appropriate discount factor formula listed in the table. The effect and nominal functions are only used for converting between the effective and nominal annual rates, where. To be clear about the nomenclature used in the discount factor table, refer to the following cash flow diagrams for P, F, A, and. It uses the same basis for the period (annual, monthly, etc.) as used for the number of periods,. With the use of calculators and spreadsheets, the table lookup technique is practically obsolete. Daily Compounding (p365 or p360) The above formula can be used to calculate an effective annual interest rate for daily compounding by setting p 1 and k to the number of banking days in the year (typically 365 or 360).