Question

If the present value of $280 paid one year
from now is $250, what is the one-year
discount factor?
*Make sure to input all currency answers
without any currency symbols or commas,
and use two decimal places of precision.​

Answer 1

Answer:

12%

Explanation:

1+r=280/250

1+r=1.12

r=12%

Answer 2

Given:

Present value=$250

Future value=$280

To find:

The one-year discount factor

Solution:

The one-year discount factor is 0.89.

We can find the factor by following the given process-

We know that the discounting rate can be calculated by dividing the future and present value and then subtracting 1 from it.

We will get the discounting rate for the one-year period.

Let the discount rate be d.

So, d=(Future value/Present value)-1

On putting the values, we get

d=(280/250)-1

d=1.12-1

d=0.12

Now, the discounting factor can be calculated using the formula-

Discounting factor=1/(1+d)

We will put the value of d to find the factor.

Discounting factor=1/(1+0.12)

=1/1.12

=0.89

Therefore, the one-year discount factor is 0.89.