What a Discount Factor Table Does
A discount factor — also called the Present Value Interest Factor (PVIF) — is the present value today of a single $1 received n periods in the future, discounted at a periodic interest rate i. This creator builds a full grid of those factors: rows are the number of periods and columns are interest rates, so you can read the discount factor for any rate-and-period combination at a glance. Multiply any future single cash flow by the matching factor to get its present value today.
How to Use It
Choose how many rate columns you want, the starting rate, and the rate increment added to each successive column. Then set how many period rows you want, the starting period, and the period increment. The tool computes a factor for every cell and rounds it to five decimal places. The headline value shows the factor in the first cell — the present value of $1 at the starting rate and starting period.
The Formula Explained
Each cell uses the standard discounting formula $$DF = \frac{1}{(1+i)^n}$$ where i is the periodic rate written as a decimal (a 5% column means \(i = 0.05\)) and n is the number of periods. The discount factor is the reciprocal of the future-value factor \((1+i)^n\), so for any positive rate it lies between 0 and 1 and shrinks as either the rate or the number of periods grows.
Worked Example
For n = 1 at a 5% rate: $$(1.05)^{-1} = \frac{1}{1.05} = 0.95238$$ For n = 10 at 5%: $$(1.05)^{-10} = \frac{1}{1.62889} = 0.61391$$ For n = 3 at 8%: $$(1.08)^{-3} = \frac{1}{1.259712} = 0.79383$$ So $1,000 received in 10 years, discounted at 5%, is worth about $1,000 × 0.61391 = $613.91 today.
Frequently Asked Questions
How do I use a discount factor? Multiply a single future cash flow by the factor for its rate and period: $2,000 due in 3 years at 8% has a present value of 2,000 × 0.79383 = $1,587.66.
Why is every factor less than 1? Money in the future is worth less than money today, so discounting a positive future amount always yields a smaller present value; the factor equals 1 only when the rate is 0% or the period is 0.
How does this differ from an annuity (PVIFA) table? A discount factor table values a single $1 received once at period n, while a PVIFA table values $1 received every period up to n; the PVIFA factor is the running sum of the single-payment discount factors.
