Discount Factor
Simplify the yield calculation
Last updated
Simplify the yield calculation
Last updated
The discount factor in bond trading is the mathematical factor used to convert a series of future cash flows into a present value. The discount factor is useful as it allows investors to compare bonds of different maturities and features as they can convert all cash flow streams into a present value. This also helps investors compare each bond's expected return more accurately in traditional finance.
The zero-coupon(ZC) bond price on our platform equals the Discount Factor times 100(our ZC bond is redeemable at 100 at maturity). Using the ZC bond price, you can easily calculate your Present Value(PV) and Future Value(FV).
Example:
Bob buys a 1,000 FIL notional of the ZC bond at 96.90 today, it will be redeemable at 1,000 / 96.90 * 100 = 1,032 FIL at maturity.
