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Definition of discount ratediscount 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.
Related Terms: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 All equity rateThe discount rate that reflects only the business risks of a project and abstracts from the Basic IRR ruleAccept the project if IRR is greater than the discount rate; reject the project is lower than the Capitalization RateA discount rate used to find the present value of a series of future cash receipts. Sometimes called discount rate. Constant-growth modelAlso called the Gordon-Shapiro model, an application of the dividend discount Cost of CapitalThe discount rate that should be used in the capital budgeting process. Cost of limited partner capitalThe discount rate that equates the after-tax inflows with outflows for capital Discount curveThe curve of discount rates vs. maturity dates for bonds. Discount WindowThe Federal Reserve facility at which reserves are loaned to banks at the discount rate. 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. Internal rate of returnDollar-weighted rate of return. discount rate at which net present value (NPV) Internal rate of return a. The average annual yield earned by an investment during the period held. internal rate of return (IRR)The precise discount rate that makes the Internal Rate of Return (IRR)The discount rate that equates the present value of the net cash internal rate of return (IRR)the expected or actual rate of internal rate of return (IRR)discount rate at which project NPV = 0. log size modelAbrams’ model to calculate discount rates as a function of the logarithm of the value of the firm. Market capitalization rateExpected return on a security. The market-consensus estimate of the appropriate NPV profileA graph of NPV as a function of the discount rate. present value (PV)This amount is calculated by discounting the future PV (present value of cash flows)the value in today’s dollars of cash flows that occur in different time periods. QMDM (quantitative marketability discount model)model for calculating DLOM for minority interests r the discount rate reinvestment assumptionan assumption made about the rates of return that will be earned by intermediate cash flows from a capital project; NPV and PI assume reinvestment at the discount rate; IRR assumes reinvestment at the IRR weighted-average cost of capitalWeighted means that the proportions of Accelerated cost recovery system (ACRS)Schedule of depreciation rates allowed for tax purposes. Accelerated depreciationAny depreciation method that produces larger deductions for depreciation in the accelerated depreciation(1) The estimated useful life of the fixed asset being depreciated is Accelerated depreciationAny of several methods that recognize an increased amount Accounting rate of return (ARR)A method of investment appraisal that measures accounting rate of return (ARR)the rate of earnings obtained on the average capital investment over the life of a capital project; computed as average annual profits divided by average investment; not based on cash flow Accretion (of a discount)In portfolio accounting, a straight-line accumulation of capital gains on discount Active portfolio strategyA strategy that uses available information and forecasting techniques to seek a ad hoc discounta price concession made under competitive pressure (real or imagined) that does not relate to quantity purchased ADF (annuity discount factor)the present value of a finite stream of cash flows for every beginning $1 of cash flow. Adjustable rate preferred stock (ARPS)Publicly traded issues that may be collateralized by mortgages and MBSs. After-tax real rate of returnMoney after-tax rate of return minus the inflation rate. Amortizing interest rate swapSwap in which the principal or national amount rises (falls) as interest rates Annual percentage rate (APR)The periodic rate times the number of periods in a year. For example, a 5% annual percentage rate (APR)Interest rate that is annualized using simple interest. Arithmetic average (mean) rate of returnArithmetic mean return. Auction rate preferred stock (ARPS)Floating rate preferred stock, the dividend on which is adjusted every Average rate of return (ARR)The ratio of the average cash inflow to the amount invested. Average tax rateTaxes as a fraction of income; total taxes divided by total taxable income. average tax rateTotal taxes owed divided by total income. Bank discount basisA convention used for quoting bids and offers for treasury bills in terms of annualized Barbell strategyA strategy in which the maturities of the securities included in the portfolio are concentrated Base interest rateRelated: Benchmark interest rate. Basic business strategiesKey strategies a firm intends to pursue in carrying out its business plan. Benchmark interest rateAlso called the base interest rate, it is the minimum interest rate investors will Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit CommitteesA committee formed in response to SEC chairman Arthur Levitt's initiative to improve the financial book rate of returnAccounting income divided by book value. Break-even payment rateThe prepayment rate of a MBS coupon that will produce the same CFY as that of Break-even tax rateThe tax rate at which a party to a prospective transaction is indifferent between entering Broker loan rateRelated: Call money rate. Bullet strategyA strategy in which a portfolio is constructed so that the maturities of its securities are highly Buy-and-hold strategyA passive investment strategy with no active buying and selling of stocks from the Call money rateAlso called the broker loan rate , the interest rate that banks charge brokers to finance cash burn rateA relatively recent term that refers to how fast a business Cash discountAn incentive offered to purchasers of a firm's product for payment within a specified time Combination strategyA strategy in which a put and with the same strike price and expiration are either both compensation strategya foundation for the compensation plan that addresses the role compensation should play in the organization computer integrated manufacturing (CIM)the integration of two or more flexible manufacturing systems through the use of a host computer and an information networking system confrontation strategyan organizational strategy in which company management decides to confront, rather than avoid, competition; an organizational strategy in which company management still attempts to differentiate company ConglomerateA firm engaged in two or more unrelated businesses. Conglomerate mergerA merger involving two or more firms that are in unrelated businesses. 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 Contribution RateThe percentage tax charged by a state to an employer to Corporate acquisitionThe acquisition of one firm by anther firm. Corporate bondsDebt obligations issued by corporations. Corporate charterA legal document creating a corporation. Corporate financeOne of the three areas of the discipline of finance. It deals with the operation of the firm Corporate financial managementThe application of financial principals within a corporation to create and Corporate financial planningFinancial planning conducted by a firm that encompasses preparation of both Corporate processing floatThe time that elapses between receipt of payment from a customer and the Corporate tax viewThe argument that double (corporate and individual) taxation of equity returns makes Corporate taxable equivalentrate of return required on a par bond to produce the same after-tax yield to cost leadership strategya plan to achieve the position in a Coupon rateIn bonds, notes or other fixed income securities, the stated percentage rate of interest, usually Coupon RateThe rate of interest paid on a debt security. Generally stated on an Coupon rateThe nominal interest rate that the issuer promises to pay the coupon rateAnnual interest payment as a percentage of face value. Covered call writing strategyA strategy that involves writing a call option on securities that the investor Covered or hedge option strategiesStrategies that involve a position in an option as well as a position in the Crediting rateThe interest rate offered on an investment type insurance policy. Cross ratesThe exchange rate between two currencies expressed as the ratio of two foreign exchange rates Crossover rateThe return at which two alternative projects have the same net present value. Current rate methodUnder this currency translation method, all foreign currency balance-sheet and income Dedication strategyRefers to multi-period cash flow matching. Deep-discount bondA bond issued with a very low coupon or no coupon and selling at a price far below par differentiation strategya technique for avoiding competition by distinguishing a product or service from that of competitors through adding sufficient value (including quality and/or features) that customers are willing to pay 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.
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