Also known as the present value factor, the discount factor formula for multiple years is an important equation used in finance to calculate the present value of a future sum of money. For instance, if you are expecting to receive $100 in five years and the current interest rate is 5%, the discount factor for five years would be 0.7835, which means that the present value of $100 received in five years is $78.35.
The discount factor formula is relevant for investors, businesses, and individuals who need to make informed financial decisions. It provides a way to compare the value of future cash flows at different points in time and make investment decisions accordingly. Historically, the discount factor formula has been used for centuries to calculate the present value of annuities, bonds, and other financial instruments.