Get discount factor — get_discount

This function calculates the discount factor based on discount rate. If the argument inflation_rate is NULL (default), it is assumed that the discount rate is already corrected for inflation). Otherwise (if a value for inflation_rate is entered), the resulted discount factor is adjusted for inflation.

Usage

get_discount_factor(
  discount_rate,
  n_years,
  discount_shape = "exponential",
  inflation_rate = NULL
)

Arguments

discount_rate: Numeric value showing the discount rate for future years. If it is a nominal discount rate, no inflation is to be entered. If it is a real discount rate, the result can be adjusted by entering inflation in this function.
n_years: Numeric value referring to number of years in the future to be considered in the discounting and/or inflation. Be aware that the year 0 (without discounting/inflation, i.e. the present) is not be counted here. If a vector is entered in the argument impact, n_years does not need to be entered (length of impact = n_years + 1).
discount_shape: String referring to the assumed equation for the discount factor. By default: "exponential". Otherwise: "hyperbolic_harvey_1986" or "hyperbolic_mazur_1987".
inflation_rate: Numeric value between 0 and 1 referring to the annual inflation (increase of prices). Only to be entered if nominal (not real) discount rate is entered in the function. Default value = NULL (assuming no nominal discount rate).

Value

This function returns the numeric discount factor.

Details

Equations discount factors (without inflation)

Exponential discounting (no inflation) $$discount\_factor = \frac{1}{(1 + discount\_rate) ^{n\_years}}$$

Hyperbolic discounting Harvey (no inflation) $$discount\_factor = \frac{1}{(1 + n\_years)^{discount\_rate}}$$ Hyperbolic discounting Mazure (no inflation) $$discount\_factor = \frac{1}{(1 + (discount\_rate \times n\_years)}$$

Equations discount factors with inflation

Exponential discounting (with inflation) $$discount\_and\_inflation\_factor = \frac{1}{((1 + discount\_rate) \times (1 + inflation\_rate)) ^{n\_years}}$$

Hyperbolic discounting Harvey (with inflation) $$discount\_and\_inflation\_factor = \frac{1}{(1 + n\_years)^{discount\_rate} \times (1 + inflation\_rate)^{n\_years}}$$ Hyperbolic discounting Mazure (with inflation) $$discount\_and\_inflation\_factor = \frac{1}{(1 + (discount\_rate \times n\_years) \times (1 + inflation\_rate)^{n\_years}}$$

Author

Alberto Castro & Axel Luyten

Examples

get_discount_factor(
  discount_rate = 0.07,
  n_years = 5
 )
#> [1] 0.7129862