Enter the discount rate in percent and the number of compounding periods into the calculator. The calculator will evaluate and display the equivalent discount factor.

Discount Factor Formula

The following equation can be used to calculate a discount factor given the discount rate and compounding periods. 

D = 1 / (1 + r)^T
  • Where D is the discount factor
  • r is the discount rate (%)
  • T is the number of compounding periods.

To calculate the discount factor, divide 1 by the result of 1 plus the discount rate raised to the power of the number of compounding periods.

Discount Factor Definition

What is a discount factor? A discount factor is an equivalent ratio or factor for a discount that’s applied over many compounding periods. For example, a 1% discount over 10 periods is a discount factor of .9053. Multiply the .0953 number by your original number to get the final price or value of your item.

Discount Factor Example

How to calculate a discount factor?

  1. First, determine the rate.

    Determine the discount percentage rate.

  2. Next, determine the number of compounding periods.

    Determine the total number of compounding periods of the discount.

  3. Finally, calculate the discount factor.

    Calculate the discount factor using the formula above.

FAQ

What is a discount factor?

A discount factor is an equivalent ratio of a discount that is applied over more than one period.