Discount rate vs. Discount factor


Discount rate vs. Discount factor

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There is a consensus among peers that Discount Factor is to be used on the assignment. Considering the topics discussed in the book, I agree with this, even though Mr. Neas and Ms. Vee have written Discount Rate in question 2.3 and 2.4.

Discount Factor: D = 1/(1+r), where r is the interest rate. Used for Corporate Finance.

Discount Rate: d = i/(1+i), i is the interest rate. Used for Exam FM.

[NEAS: Correct. The distinction on Exam FM is an actuarial one. Finance people use 1/(1+r).]


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