Question

The one-year discount factor, at a discount rate of 25 percent per year, is:

A. 0.8.
B. 1.25.
C. 0.75.
D. 1.0.

Answer 1

The one-year discount factor at a discount rate of 25 percent per year is A. 0.8, which is the present value of one dollar received in one year at that discount rate.

Step-by-step explanation:

The one-year discount factor at a discount rate of 25 percent per year is calculated using the formula Discount Factor = 1 / (1 + r), where r is the discount rate. Plugging in the given rate:

Discount Factor = 1 / (1 + 0.25) = 1 / 1.25 = 0.8.

Therefore, the correct answer is A. 0.8. This represents the present value of a single monetary unit (e.g., $1) to be received after one year, discounted at the rate of 25%.