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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: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 ADF (annuity discount factor)the present value of a finite stream of cash flows for every beginning $1 of cash flow. 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 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 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 factorPresent value of $1 received at a stated future date. discount factorPresent value of a $1 future payment. 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)Future cash flows multiplied by discount factors to obtain present values. 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 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. 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. Original issue discount debt (OID debt)Debt that is initially offered at a price below par. 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 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. 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). All equity rateThe discount rate that reflects only the business risks of a project and abstracts from the Amortized CostCost of a security adjusted for the amortization of any purchase premium or 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 Capital budgetingThe series of steps one follows when justifying the decision to purchase Capitalization RateA discount rate used to find the present value of a series of future cash receipts. Sometimes called discount rate. Channel StuffingShipments of product to distributors who are encouraged to overbuy under 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 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 Coupon BondAny bond with a coupon. Contrast with discount bond. 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 economic components modelAbrams’ model for calculating DLOM based on the interaction of discounts from four economic components. Eligible bankers' acceptancesIn the BA market, an acceptance may be referred to as eligible because it is FactoringThe discounting, or sale at a discount, of receivables on a nonrecourse, notification First To Die CoverageThis means that there are two or more life insured on the same policy but the death benefit is paid out on the first death only. If two or more persons at the same address are purchasing life insurance at the same time, it is wise to compare the cost of this kind of coverage with individual policies having a multiple policy discount. Gross salesThe total sales recorded prior to sales discounts and returns. 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)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 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. 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 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 Modified durationThe Macaulay duration discounted by the per-period money market fundA type of mutual fund that invests primarily in short-term debt securities maturing in one year or less. These include treasury bills, bankers’ acceptances, commercial paper, discount notes and guaranteed investment certficates. Net periodThe period of time between the end of the discount period and the date payment is due. Net present valueA discounted cash flow methodology that uses a required rate of net present value methoda process that uses the discounted 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. Net Present Value (NPV) MethodA method of ranking investment proposals. NPV is equal to the present value of the future returns, discounted at the marginal cost of capital, minus the present value of the cost of the investment. Net salesTotal revenue, less the cost of sales returns, allowances, and discounts. NET SALES (revenue)The amount sold after customers’ returns, sales discounts, and other allowances are taken away from NPV profileA graph of NPV as a function of the discount rate.
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