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Hello there,
This is my first time on here and I was wondering if someone can help me with figuring out how to calculate the discount factor 8% for 1-5 years at once without having to do this:
Y1 DF= 1/(1+.08) = 0.926
Y2 DF= 1/(1+.08)^2 = 0.857
Y3 DF= 1/(1+.08)^3 = 0.794
Y4 DF= 1/(1+.08)^4 = 0.735
Y5 DF= 1/(1+.08)^5 = 0.681
Total of 3.993
I want the shortcut for the 3.993 by using a formulaOk never mind, I just saw a previous post, it says this [1-(1/(1+r)^n)]/r means [1-(1/(1.08)^5)]/.08 =3.993
If anyone is interested!
You get given tables in the exam – both for discounting individual flows, and also for discounting annuities (such as the one you have described). You certainly will not have time in the exam to be calculating the discount factors using the formulae!
I do suggest you watch the free lectures on discounting techniques (and maybe the F2 discounting lectures as well, because this is revision of F2).
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