Discount Factor Calculator

Formula

To calculate the Discount Factor:

\[ D = \frac{1}{(1 + r)^T} \]

Where:

\(D\) is the Discount Factor
\(r\) is the Discount Rate (%)
\(T\) is the Number of Compounding Periods

What is a Discount Factor?

A discount factor is an equivalent ratio or factor for a discount that's applied over many compounding periods. For example, a 1% discount over 10 periods is a discount factor of 0.9053. Multiply the 0.9053 number by your original number to get the final price or value of your item.

Example Calculation 1

Let's assume the following values:

Discount Rate (\(r\)) = 1%
Number of Compounding Periods (\(T\)) = 10

Using the formula:

\[ D = \frac{1}{(1 + 0.01)^{10}} = \frac{1}{1.104622} = 0.9053 \]

The Discount Factor is approximately 0.9053.

Example Calculation 2

Let's assume the following values:

Discount Rate (\(r\)) = 5%
Number of Compounding Periods (\(T\)) = 5

Using the formula:

\[ D = \frac{1}{(1 + 0.05)^{5}} = \frac{1}{1.276281} = 0.7835 \]

The Discount Factor is approximately 0.7835.