The Bias in Annual (Versus Monthly) Discounting is Immaterial
This article presents a discussion of the validity of using the mid-year convention from a different point of view than the March 2002 B VR article by Michael Dobner.1 Although our conclusions are similar, we develop exact formulas for annuity discount factors with growth for both monthly and daily cash flows. These can be useful tools for the valuation community when precision is important.
Contributor Notes
Jay B. Abrams, ASA, CPA, MBA, is the principal of Abrams Valuation Group, a firm that specializes in business valuation, with headquarters in North Hollywood, California and offices in La Jolla, California, and North Palm Beach, Florida. Mr. Abrams has invented many valuation formulas. He has an MBA in finance from the University of Chicago, where he also took graduate courses in the Department of Economics.
R. K. Hiatt is a business appraiser at Khalsa, McBrearty & Associates, LLP, which specializes in accounting, tax planning, and business valuation, with offices in Phoenix, Arizona and San Diego, California. He is a former Navy submarine officer and has been performing business valuations since receiving his MBA from the University of San Diego in 1996.