A discount factor percentage is a financial calculation that determines the present value of a future sum of money. For instance, if you expect to receive $100 in a year and the current interest rate is 5%, the discount factor would be 0.9524, resulting in a present value of $95.24.
The concept of discount factors is crucial in finance, as it helps businesses and individuals evaluate investments, compare different financing options, and make informed financial decisions. Historically, the development of discounted cash flow analysis methodologies in the 1950s and 1960s significantly contributed to the widespread use and understanding of discount factor calculations.