Question

If the one-year discount factor is 0.8333, what is the discount rate (interest rate) per year?

Answer 1

20%

Step-by-step explanation:

The computation of the discount rate per year is shown below:

As we know that

Discount factor = 1 ÷ (1 + Interest rate)^number of years

0.8333 = 1 ÷ (1 + Interest rate)^1

1 + Interest rate = 1 ÷ 0.8333

Interest rate = 1.20 - 1

Interest rate = 0.20 or 20%

Hence, the interest rate is 20% by applying the discount factor formula which is shown above