Discount Factor (Future Value)

This is a decimal number that when multiplied by a future value will give the present value.

It is common to convert an interest rate into its corresponding discount factor.
When you have a discount factor you can multiply the cash flow by the discount factor to give its present value.

Simple Interest

Compounded Interest

Continuously Compounded

Receiving Money in the Future

If you are going to receive money in the future, what is that money worth today?
When you are receiving a lot of cash flows in the future, you can use a Discount Curve.
When you are pricing cash flows that are coming from Derivative instruments, this curve is called the Spot Curve.

Discounted Cash Flow (DCF) Model