What is decay factor in SAP FIN-FSCM-TRM - Treasury and Risk Management?

SAP Term: decay factor

• Component: FIN-FSCM-TRM

• Component Name: Treasury and Risk Management

• Description: By entering a decay factor, you generate an exponential weighting so that older market prices are weighted less in the evaluation than newer ones. Note the following relationships apply to the decay factor d and the weightings gi of the historical period i: Decay factor is between 0 and 1. The sum of the weights is 1. Weights gi are calculated as 1-d*d exp i.

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• Key Concepts: 
  Decay factor is a term used in SAP Treasury and Risk Management (FIN-FSCM-TRM) to describe the rate at which the value of an asset or liability decreases over time. It is used to calculate the present value of a future cash flow, taking into account the time value of money. 
  
  How to use it: 
  The decay factor is used in SAP Treasury and Risk Management to calculate the present value of a future cash flow. This calculation takes into account the time value of money, which means that a dollar today is worth more than a dollar tomorrow. The decay factor is calculated by dividing the current value of an asset or liability by its future value. 
  
  Tips & Tricks: 
  When calculating the decay factor, it is important to consider the current market conditions and any potential changes that could affect the future value of the asset or liability. Additionally, it is important to consider any taxes or fees that may be associated with the asset or liability. 
  
  Related Information: 
  The decay factor can be used in conjunction with other financial calculations, such as calculating the net present value (NPV) of an investment. Additionally, it can be used to calculate the internal rate of return (IRR) for an investment.