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Discount curve |
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Definition of Discount curveDiscount curveThe curve of discount rates vs. maturity dates for bonds.
Related Terms:ADF (annuity discount factor)the present value of a finite stream of cash flows for every beginning $1 of cash flow. DLOC (discount for lack of control)an amount or percentage deducted from a pro rata share of the value of 100% of an equity interest in a business, to reflect the absence of some or all of the powers of control. DLOM (discount for lack of marketability)an amount or percentage deducted from an equity interest to reflect lack of marketability. discount ratethe rate of return on investment that would be required by a prudent investor to invest in an asset with a specific level risk. Also, a rate of return used to convert a monetary sum, payable or receivable in the future, into present value. fractional interest discountthe combined discounts for lack of control and marketability. g the constant growth rate in cash flows or net income used in the ADF, Gordon model, or present value factor. QMDM (quantitative marketability discount model)model for calculating DLOM for minority interests r the discount rate Accretion (of a discount)In portfolio accounting, a straight-line accumulation of capital gains on discount Bank discount basisA convention used for quoting bids and offers for treasury bills in terms of annualized Cash discountAn incentive offered to purchasers of a firm's product for payment within a specified time Deep-discount bondA bond issued with a very low coupon or no coupon and selling at a price far below par DiscountReferring to the selling price of a bond, a price below its par value. Related: premium. Discount bondDebt sold for less than its principal value. If a discount bond pays no interest, it is called a Discount factorPresent value of $1 received at a stated future date. Discount periodThe period during which a customer can deduct the discount from the net amount of the bill Discount rateThe interest rate that the Federal Reserve charges a bank to borrow funds when a bank is Discount securitiesNon-interest-bearing money market instruments that are issued at a discount and Discount windowFacility provided by the Fed enabling member banks to borrow reserves against collateral Discounted basisSelling something on a discounted basis is selling below what its value will be at maturity, Discounted cash flow (DCF)Future cash flows multiplied by discount factors to obtain present values. Discounted dividend model (DDM)A formula to estimate the intrinsic value of a firm by figuring the Discounted payback period ruleAn investment decision rule in which the cash flows are discounted at an DiscountingCalculating the present value of a future amount. The process is opposite to compounding. Dividend discount model (DDM)A model for valuing the common stock of a company, based on the Documented discount notesCommercial paper backed by normal bank lines plus a letter of credit from a Flattening of the yield curveA change in the yield curve where the spread between the yield on a long-term Forward discountA currency trades at a forward discount when its forward price is lower than its spot price. Indifference curveThe graphical expression of a utility function, where the horizontal axis measures risk and J-curveTheory that says a country's trade deficit will initially worsen after its currency depreciates because Non-parallel shift in the yield curveA shift in the yield curve in which yields do not change by the same Original issue discount debt (OID debt)Debt that is initially offered at a price below par. Parallel shift in the yield curveA shift in the yield curve in which the change in the yield on all maturities is Pure-discount bondA bond that will make only one payment of principal and interest. Also called a zerocoupon Riding the yield curveBuying long-term bonds in anticipation of capital gains as yields fall with the Spot rate curveThe graphical depiction of the relationship between the spot rates and maturity. Steepening of the yield curveA change in the yield curve where the spread between the yield on a long-term Stopping curveA curve showing the refunding rates for different points in time at which the expected value Stopping curve refunding rateA refunding rate that falls on the stopping curve. Theoretical spot rate curveA curve derived from theoretical considerations as applied to the yields of Yield curveThe graphical depiction of the relationship between the yield on bonds of the same credit quality Yield curve option-pricing modelsModels that can incorporate different volatility assumptions along the Yield curve strategiesPositioning a portfolio to capitalize on expected changes in the shape of the Treasury yield curve. Discounted cash flow (DCF)A method of investment appraisal that discounts future cash flows to present value using a discount rate, which is the risk-adjusted cost of capital. Purchase discountsA contra account that reduces purchases by the amount of the discounts taken for early payment. Sales discountsA contra account that offsets revenue. It represents the amount of the discounts for early payment allowed on sales. discounted cash flow (DCF)Refers to a capital investment analysis technique Continuous DiscountingThe process of calculating the present value of a stream of future Discount RateThe rate of interest used to calculate the present value of a stream DiscountingThe process of calculating the present value of a stream of future Yield CurveA graphical representation of the level of interest rates for ad hoc discounta price concession made under competitive pressure (real or imagined) that does not relate to quantity purchased discountingthe process of reducing future cash flows to present value amounts discount ratethe rate of return used to discount future cash learning curvea model that helps predict how labor time risk-adjusted discount rate methoda formal method of adjusting for risk in which the decision maker increases the rate used for discounting the future cash flows to compensate for increased risk Par yield curveThe yield curve of bonds selling at par, or face, value. Spot curve, spot yield curveSee Zero curve. Yield curveGraph of yields (vertical axis) of a particular type of security Zero curve, zero-coupon yield curveA yield curve for zero-coupon bonds; Discounted cash flowA technique that determines the present value of future cash Sales discountA reduction in the price of a product or service that is offered by the constant-growth dividend discount modelVersion of the dividend discount model in which dividends grow at a constant rate. discount factorPresent value of a $1 future payment. discount rateInterest rate used to compute present values of future cash flows. dividend discount modelComputation of todayâ€™s stock price which states that share value equals the present value of all expected future dividends. yield curveGraph of the relationship between time to maturity and yield to maturity. Aggregate Demand CurveCombinations of the price level and income for which the goods and services market is in equilibrium, or for which both the goods and services market and the money market are in equilibrium. Aggregate Expenditure CurveAggregate demand for goods and services drawn as a function of the level of national income. Aggregate Supply CurveCombinations of price level and income for which the labor market is in equilibrium. The short-run aggregate supply curve incorporates information and price/wage inflexibilities in the labor market, whereas the long-run aggregate supply curve does not. DiscountThe percentage amount at which bonds sell below their par value. Also the percentage amount at which a currency sells on the forward market below its current rate on the spot market. Discount BondA bond with no coupons, priced below its face value; the return on this bond comes from the difference between its face value and its current price. DiscountingCalculating the present value of a future payment. Discount RateThe interest rate at which the Fed is prepared to loan reserves to commercial banks. Discount WindowThe Federal Reserve facility at which reserves are loaned to banks at the discount rate. Laffer Curvecurve showing how tax receipts vary with the tax rate. Phillips CurveRelationship between inflation and unemployment. Yield curveA graph showing how the yield on bonds varies with time to maturity. Non-Smoker DiscountIn October 1996 it was announced in the international news that scientists had finally located the link between cigarette smoking and lung cancer. In the early 1980's, some Canadian Life Insurance Companies had already started recognizing that non-smokers had a better life expectancy than smokers so commenced offering premium discounts for life insurance to new applicants who have been non-smokers for at least 12 months before applying for coverage. Today, most life insurance companies offer these discounts. Discount RateA rate of return used to convert a monetary sum, payable or receivable in the future, into present value. Discounted Cash FlowTechniques for establishing the relative worth of a future investment by discounting (at a required rate of return) the expected net cash flows from the project. DiscountingThe process of finding the present value of a series of future cash flows. discounting is the reverse of compounding. Discounting of Accounts ReceivableShort-term financing in which accounts receivable are used as collateral to secure a loan. The lender does not buy the accounts receivable but simply uses them as collateral for the loan. Also called pledging of accounts receivable. Supplier DiscountAn amount deducted from an invoice by a supplier in exchange for quick payment (a typical example might be a 2% discount if paid in 10 days or the full amount of the invoice in 30 days).
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