The discount factor formula mid year calculates the present value of a future sum of money when interest is compounded twice a year. For instance, $100 received in six months at 6% compounded semi-annually has a present value of $97.22.
This formula is essential for financial planning, budgeting, and investment analysis. It allows us to compare future cash flows with current values and make informed decisions. Historically, the concept of discounting future cash flows emerged in the 17th century with the work of mathematicians like James Gregory and Nicolaus Mercator.