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Discount |
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Definition of DiscountDiscountReferring 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.
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 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 Forward discountA currency trades at a forward discount when its forward price is lower than its spot price. Original issue discount debt (OID debt)Debt that is initially offered at a price below par. Pure-discount bondA bond that will make only one payment of principal and interest. Also called a zerocoupon 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 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 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 Discount curveThe curve of discount rates vs. maturity dates for 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 today’s stock price which states that share value equals the present value of all expected future dividends. 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. 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). economic components modelAbrams’ model for calculating DLOM based on the interaction of discounts from four economic components. log size modelAbrams’ model to calculate discount rates as a function of the logarithm of the value of the firm. PV (present value of cash flows)the value in today’s dollars of cash flows that occur in different time periods. All equity rateThe discount rate that reflects only the business risks of a project and abstracts from the Attribute biasThe tendency of stocks preferred by the dividend discount model to share certain equity Banker's acceptanceA short-term credit investment created by a non-financial firm and guaranteed by a Basic IRR ruleAccept the project if IRR is greater than the discount rate; reject the project is lower than the CommissionThe fee paid to a broker to execute a trade, based on number of shares, bonds, options, and/or Constant-growth modelAlso called the Gordon-Shapiro model, an application of the dividend discount Corporate taxable equivalentRate of return required on a par bond to produce the same after-tax yield to Cost of limited partner capitalThe discount rate that equates the after-tax inflows with outflows for capital DCFSee: discounted cash flows. Debt swapA set of transactions (also called a debt-equity swap) in which a firm buys a country's dollar bank Deferred futuresThe most distant months of a futures contract. A bond that sells at a discount and does not Dividend reinvestment plan (DRP)Automatic reinvestment of shareholder dividends in more shares of a Eligible bankers' acceptancesIn the BA market, an acceptance may be referred to as eligible because it is Internal rate of returnDollar-weighted rate of return. discount rate at which net present value (NPV) Intrinsic value of a firmThe present value of a firm's expected future net cash flows discounted by the Investment trustA closed-end fund regulated by the Investment Company Act of 1940. These funds have a Market capitalization rateExpected return on a security. The market-consensus estimate of the appropriate Net periodThe period of time between the end of the discount period and the date payment is due. NPV profileA graph of NPV as a function of the discount rate. Poison pillAnit-takeover device that gives a prospective acquiree's shareholders the right to buy shares of the Price riskThe risk that the value of a security (or a portfolio) will decline in the future. Or, a type of Rights offeringIssuance of "rights" to current shareholders allowing them to purchase additional shares, Settlement rateThe rate suggested in Financial Accounting Standard Board (FASB) 87 for discounting the Three-phase DDMA version of the dividend discount model which applies a different expected dividend True interest costFor a security such as commercial paper that is sold on a discount basis, the coupon rate Value managerA manager who seeks to buy stocks that are at a discount to their "fair value" and sell them at Zero coupon bondSuch a debt security pays an investor no interest. It is sold at a discount to its face price NET SALES (revenue)The amount sold after customers’ returns, sales discounts, and other allowances are taken away from Internal rate of return (IRR)A discounted cash flow technique used for investment appraisal that calculates the effective cost of capital that produces a net present value of zero from a series of future cash flows and an Net present value (NPV)A discounted cash flow technique used for investment appraisal that calculates the present value of future cash flows and deducts the initial capital investment. internal rate of return (IRR)The precise discount rate that makes the present value (PV)This amount is calculated by discounting the future revenue-driven expensesOperating expenses that vary in proportion to weighted-average cost of capitalWeighted means that the proportions of Internal Rate of Return (IRR)The discount rate that equates the present value of the net cash Present Value (PV)The dollar value at the present time (year zero) of a single cash Zero-coupon BondA security that makes no interest payments; it is sold at a discount internal rate of return (IRR)the expected or actual rate of net present value methoda process that uses the discounted purchasing costthe quoted price of inventory minus any 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
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