Seattle Pacific University

Again, the “1 + i” is compounded to account for the belief that risk grows geometrically over time rather than arithmetically. For example, period 2’s discount factor would be (1 + i)2 or (1 + i) * (1 + i). Given a discount rate of 10%, year 2’s discount factor would be multiplicative (1 + .21) rather than additive (1 + .20). ................
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