# DISCOUNT FACTOR

This topic contains 4 replies, has 2 voices, and was last updated by  gromit 2 years, 6 months ago.

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• quartey11
Participant

Please how do you calculate the discount factor rate when the interest ( say 5%) is paid annually in areas for 5 years

gromit
Keymaster

Look up the tables or use

1/r(1- 1/(1+r)^n)

So for 6% and 5 years:

1/0.06(1 – 1/(1.06)^5) = 4.212

quartey11
Participant

thank you sir, very much appreciated

quartey11
Participant

Hello gromit, we have ( 1-1) which is equal to zero in the above formula which means the entire equation will be equal to zero if we are to use BODMAS IN SOLVING THE EQUATION.yOUR URGENT REPLY WILL BE APPRECIATED. Thank you

gromit
Keymaster

It’s not 1-1 it’s 1 – [1/(1.06)^5]

The terms in the square rackets are worked out first then subtracted from 1. (This how the original equation should be interpreted: multiply and divide before add and subtract is the normal precedence)

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