An important element in estimating the present value of an investment is the calculation of the discount factor.The discount factor may be expressed as _______ where r is the discount rate and n is the number of years the investment is held.

Question

Quizplus · Accepted Answer

The correct formula to calculate discount factor is 1/(1 + r)^n, where r is the discount rate and n is the number of years the investment is held. Option C represents this formula correctly. Option A has some incorrect symbols and option B incorrectly uses (1+n) instead of (1+r). Option D incorrectly uses (1+n) instead of (1+r) and also places the n in the numerator instead of the exponent.

An Important Element in Estimating the Present Value of an Investment