Discount Factor

definition

A discount factor is generally a factor or weight used to reduce the value or amount of an instrument, asset or transaction, etc.

Specifically, in relation to present value calculations, a discount factor is the reciprocal of its equivalent compounding factor, i.e.:



Where:

n = Compounding factor.
r = The rate of interest.
n = The number of periods to maturity.


related terms

Compounding Factor
Discount
Discount Basis


related tutorials

Interest Calculations
Money Market Calculations - Short-Term Instruments
Money Market Calculations - Term Instruments
Time Value of Money