The discount factor represents the percentage value now of financial flows at some future date. The further into the future is the flow, the lower the discount factor and hence, present value.
On the interest axis, the more unpredictable is a given cash flow, the higher is expected returns and hence the required discount factor is lower.
A high-risk project uses a high discount rate and hence a low discount factor or present value. The closer to zero the discount rate the more we are betting that future flows are valued very closely to those of the present. The more uncertain are future returns the lower is the discount factor and the lower are present values.
The formula used is 1 / ( 1 + r ) t where r is the period interest rate expressed as a decimal and t is the number of periods involved. For example, 6% is expressed as 6/100 or 0.06; t is the number of years.
This discount factors table allows for the display of figures for interest rates up to ten (10) columns.
This calculator allows you to create a table of present value Discount factors derived from a range of interest rates over any period of your choosing. To produce a table (single-column or multiple):-
Input the number of interest columns up to 10.
Input the first percentage in which you are interested.
Input the increment by which to advance which can be a decimal.
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