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If your discount factor is 0.9009, what is your discount rate?

User Taffit
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Final answer:

The yearly discount rate equivalent to a discount factor of 0.9009 is approximately 9.91%, which is determined using the formula (1 - Discount Factor) / Discount Factor.

Step-by-step explanation:

If you have a discount factor of 0.9009, to calculate the discount rate we use the formula:

Discount Rate = (1 − Discount Factor) / Discount Factor

Plugging into the formula:

Discount Rate = (1 − 0.9009) / 0.9009 = 0.0991 or 9.91%

This means the yearly discount rate equivalant to the given discount factor of 0.9009 is approximately 9.91%. Understanding the discount rate is crucial in the context of finance, as it affects the valuation of bonds, cash flows, and other investments over time.

User Oldenborg
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