Lump Sum Discount Rate Formula

Use

The lump sum discount rate formula is used to work out the discount rate (i), needed to compound a lump sum from from its present value (PV), to a future value (FV) in a number of periods (n).

Formula

i = (FV / PV)(1 / n) - 1
Variables used in the formula
PV = Present Value
FV = Future Value
i = Discount rate
n = Number of periods

Our lump sum discount rate calculator is available to help when using the above formula.

Excel Function

The Excel RATE function can be used instead of the lump sum discount rate formula, and has the syntax shown below.

RATE(n, pmt, PV, FV, type, guess)

*The pmt, type, and guess arguments are not used when calculating the discount rate for a lump sum.

Lump Sum Discount Rate Formula Example

If a lump sum of 1,500 is received at the start of period 1, then the discount rate needed to compound this to 5,000 after 10 periods is given by the lump sum discount rate formula as follows:

i = (FV / PV)(1 / n) - 1
i = (5,000 / 1,500)(1 / 10) - 1
i = 0.1279 or 12.79%

The same answer can be obtained using the discount rate formula in Excel as follows:

i = RATE(n,,PV,-FV)
i = RATE(10,,1500,-5000)
i = 12.79%

*don’t forget the minus sign on FV

The lump sum discount rate formula is one of many used in time value of money calculations, discover another at the links below.

Lump Sum Discount Rate Formula December 7th, 2017Team

You May Also Like


Related pages


nominal discount rate formulafixed manufacturing overheadfixed assets debit or creditpurchase return and allowances normal balancejournal entry for impairment losspmt exampleppv purchase price variancepresent value of an anuityprofit percentage formula excelcontinuous compounding ratefob freight collect definitionaccounts payable entry examplesublease accounting treatmentannuity table present valuedeferred revenue adjustmentpv function in excelcash dividend journal entryperpetuity calculation formulamcq on accounting with answersequity method of accounting journal entriesthe balance of an unearned revenue accountcalculating amortization expensedirect labor journal entryleverage and gearingnpv excel functiontimesheets templatesdirect labor varianceserrors not affecting the trial balancehow to write off inventory in quickbookscash conversion cycle examplefifo accounting exampleaccounts recievable turnoveramortisation definedefer revenuewhat kind of account is prepaid rentdiscounted cash flow formula in exceldepreciation template excelcalculate gross margin percentage formulaabsorption of overheadsstock adjustment journal entrytimes interest ratio formuladefinition of accrued expensesjournal entry of provision for doubtful debtswip in manufacturingjournal entry for advance salary paidsingle entry bookkeeping definitionbank reconciliation statement is prepared byimprest system accountinghow to record depreciation expense in journal entryhow to calculate earning before interest and taxesaccounts receivable turnover ratio calculatorcash disbursement journal samplepurchase ledger control account examplereceivables turnover rateshipment terms fobunearned rent revenuecash discount accounting treatmentsuspense account and errorsturnover ratio equationytm definitioncogs equationconstant growth perpetuitydepreciation to fixed assets ratiofob destination meaninghow to figure out a markup percentageirr internal rate of return formulapurchases account normal balancenon profit accounting tutorialequation for dividendsmaterials quantity variance formulastraight line amortization tablebasics of payrollgross margin percentage calculatormeaning of accrued expensesgoodwill accounting journal entry