Discount Factor

This topic has 1 reply, 2 voices, and was last updated 5 years ago by John Moffat.

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December 3, 2020 at 4:39 pm #597539
fiz90
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I have seen a question, (102 in BPP revision kit) whereby the df used at 10% is 3.17 but they have added 1 to that to get 4.17 and multiplied this by the cash inflows to net present value flows. The paymeng of the cash inflows was in advance so starting in year 0. Is that why they added 1 to the df? Due to the advanced payment?

Thanks
December 4, 2020 at 7:16 am #597584
John Moffat
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The annuity factor applies to equal annual flows starting in 1 years time.

If in addition there is a flow at time 0, then the PV of that flow is 1 times the amount of the flow.
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