- This topic has 4 replies, 5 voices, and was last updated 2 years ago by
.
- Posts
Hi Sir,
Hope you’re fine. Okay so this might sound like a silly question but I honestly forgot how to calculate the present value discount factor and the annuity discount factor, was doing a question today and suddenly got blank when this came up. Since they dont give us the tables then what’s the way to calculate it. If you could explain with an example with some interest %. Thanks.
discount factor is (1+r)^-n or 1/(1+r)^n where r is the rate used and n is the number of years. eg for 10% year 1 its 1/1.1^1=0.909.
year 2 its 1/1.1^2=0.826 and so on.
for an annuity you can add the individual discount factors or use the formula [1-(1+r)^-n]/r.
try it using the above example for years 1&2.@mracca11 said:
Hi Sir,Hope you’re fine. Okay so this might sound like a silly question but I honestly forgot how to calculate the present value discount factor and the annuity discount factor, was doing a question today and suddenly got blank when this came up. Since they dont give us the tables then what’s the way to calculate it. If you could explain with an example with some interest %. Thanks.
Hi,
You don’t need to worry about calculating the discount factor or annuity factor as they are always given to you in exam questions, so just remember that you take the amount multiplied by the discount factor or annuity factor.
Thanks
- The topic ‘Annuity discount factor and present value discount factor’ is closed to new replies.