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Discount factor |
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Definition of Discount factorDiscount factorPresent value of $1 received at a stated future date. discount factorPresent value of a $1 future payment.
Related Terms:ADF (annuity discount factor)the present value of a finite stream of cash flows for every beginning $1 of cash flow. Discounted cash flow (DCF)Future cash flows multiplied by discount factors to obtain present values. Accretion (of a discount)In portfolio accounting, a straight-line accumulation of capital gains on discount ad hoc discounta price concession made under competitive pressure (real or imagined) that does not relate to quantity purchased Amortization factorThe pool factor implied by the scheduled amortization assuming no prepayemts. Annuity factorPresent value of $1 paid for each of t periods. annuity factorPresent value of an annuity of $1 per period. 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 constant-growth dividend discount modelVersion of the dividend discount model in which dividends grow at a constant rate. Continuous DiscountingThe process of calculating the present value of a stream of future Conversion factorsRules set by the Chicago Board of Trade for determining the invoice price of each critical success factors (CSF)any item (such as quality, customer 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. 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 bondDebt sold for less than its principal value. If a discount bond pays no interest, it is called a 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. Discount curveThe curve of discount rates vs. maturity dates for bonds. Discount periodThe period during which a customer can deduct the discount from the net amount of the bill 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. Discount rateThe interest rate that the Federal Reserve charges a bank to borrow funds when a bank is Discount RateThe rate of interest used to calculate the present value of a stream discount ratethe rate of return used to discount future cash discount rateInterest rate used to compute present values of future cash flows. Discount RateThe interest rate at which the Fed is prepared to loan reserves to commercial banks. Discount RateA rate of return used to convert a monetary sum, payable or receivable in the future, into present value. 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 Discount WindowThe Federal Reserve facility at which reserves are loaned to banks at the discount rate. Discounted basisSelling something on a discounted basis is selling below what its value will be at maturity, Discounted cash flowA technique that determines the present value of future cash 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. 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. discounted cash flow (DCF)Refers to a capital investment analysis technique 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. DiscountingThe process of calculating the present value of a stream of future discountingthe process of reducing future cash flows to present value amounts DiscountingCalculating the present value of a future payment. 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. dividend discount modelComputation of today’s stock price which states that share value equals the present value of all expected future dividends. Dividend discount model (DDM)A model for valuing the common stock of a company, based on the 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. Documented discount notesCommercial paper backed by normal bank lines plus a letter of credit from a FactorA financial institution that buys a firm's accounts receivables and collects the debt. FactorAn agent who buys and sells goods on behalf of others for a commission. Factor analysisA statistical procedure that seeks to explain a certain phenomenon, such as the return on a Factor modelA way of decomposing the factors that influence a security's rate of return into common and Factor of ProductionA resource used to produce a good or service. The main macroeconomic factors of production are capital and labor. Factor portfolioA well-diversified portfolio constructed to have a beta of 1.0 on one factor and a beta of FactoringSale of a firm's accounts receivable to a financial institution known as a factor. FactoringThe sale of accounts receivable to a third party, with the third party bearing FactoringThe discounting, or sale at a discount, of receivables on a nonrecourse, notification FactoringType of financial service whereby a firm sells or transfers title to its accounts receivable to a factoring company, which then acts as principal, not as agent. Factory overheadAll the costs incurred during the manufacturing process, minus the Forward discountA currency trades at a forward discount when its forward price is lower than its spot price. 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. Interest FactorNumbers found in compound interest and annuity tables. Usually called the FVIF or PVIF. Limiting factorThe production resource that, as a result of scarce resources, limits the production of goods Maturity factoringfactoring arrangement that provides collection and insurance of accounts receivable. Multifactor CAPMA version of the capital asset pricing model derived by Merton that includes extramarket Net benefit to leverage factorA linear approximation of a factor, T*, that enables one to operationalize the 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. Old-line factoringfactoring arrangement that provides collection, insurance, and finance for accounts receivable. One-factor APTA special case of the arbitrage pricing theory that is derived from the one-factor model by Original issue discount debt (OID debt)Debt that is initially offered at a price below par. Pool factorThe outstanding principal balance divided by the original principal balance with the result PPF (periodic perpetuity factor)a generalization formula invented by Abrams that is the present value of regular but noncontiguous cash flows that have constant growth to perpetuity. Present value factorfactor used to calculate an estimate of the present value of an amount to be received in Purchase discountsA contra account that reduces purchases by the amount of the discounts taken for early payment. Pure-discount bondA bond that will make only one payment of principal and interest. Also called a zerocoupon QMDM (quantitative marketability discount model)model for calculating DLOM for minority interests r the discount rate Reported factorThe pool factor as reported by the bond buyer for a given amortization period. 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 Sales discountA reduction in the price of a product or service that is offered by the Sales discountsA contra account that offsets revenue. It represents the amount of the discounts for early payment allowed on sales. Scrap factorAn anticipated loss percentage included in the bill of material and Shrinkage factorThe expected loss of some proportion of an item during the Single factor modelA model of security returns that acknowledges only one common factor. 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). Two-factor modelBlack's zero-beta version of the capital asset pricing model. PV (present value of cash flows)the value in today’s dollars of cash flows that occur in different time periods.
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