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fractional interest discount |
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Definition of fractional interest discountfractional 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.
Related Terms:Accretion (of a discount)In portfolio accounting, a straight-line accumulation of capital gains on discount Accrued interestThe accumulated coupon interest earned but not yet paid to the seller of a bond by the Accrued InterestThe amount of interest accumulated on a debt security between Accrued InterestThe amount of interest owing but not paid. 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. Amortizing interest rate swapSwap in which the principal or national amount rises (falls) as interest rates Bank discount basisA convention used for quoting bids and offers for treasury bills in terms of annualized Base interest rateRelated: Benchmark interest rate. Benchmark interest rateAlso called the base interest rate, it is the minimum interest rate investors will Best-interests-of-creditors testThe requirement that a claim holder voting against a plan of reorganization Capitalized interestinterest that is not immediately expensed, but rather is considered as an asset and is then Capitalized Interestinterest incurred during the construction period on monies invested in Cash discountAn incentive offered to purchasers of a firm's product for payment within a specified time Cash flow after interest and taxesNet income plus depreciation. Compound interestinterest paid on previously earned interest as well as on the principal. Compound Interestinterest paid on principal and on interest earned in previous compound interesta method of determining interest in which interest that was earned in prior periods is added to the original investment so that, in each successive period, interest is earned on both principal and interest compound interestinterest earned on interest. Compound Interestinterest earned on an investment at periodic intervals and added to principal and previous interest earned. Each time new interest earned is calculated it is on a combined total of principal and previous interest earned. Essentially, interest is paid on top of interest. 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 Covered interest arbitrageA portfolio manager invests dollars in an instrument denominated in a foreign Daily Interest AccumulationAccount in which interest is accrued daily and credited to the account at the end of 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. 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 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 earnings before interest and income tax (EBIT)A measure of profit that Earnings before interest and taxes (EBIT)A financial measure defined as revenues less cost of goods sold Earnings before interest and taxes (EBIT)The operating profit before deducting interest and tax. Earnings before interest, taxes, depreciation and amortization (EBITDA)The operating profit before deducting interest, tax, depreciation and amortization. Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)An earningsbased measure that, for many, serves as a surrogate for cash flow. Actually consists of working Effective annual interest rateAn annual measure of the time value of money that fully reflects the effects of effective annual interest rateinterest rate that is annualized using compound interest. Effective Interest RateThe rate of interest actually earned on an investment. It is Equilibrium rate of interestThe interest rate that clears the market. Also called the market-clearing interest Fixed Interest RateA rate that does not fluctuate with general market conditions. Floating Interest RateA rate that fluctuates with general market condition. Forward discountA currency trades at a forward discount when its forward price is lower than its spot price. Forward interest rateinterest rate fixed today on a loan to be made at some future date. Fractional Reserve BankingA banking system in which banks hold only a fraction of their outstanding deposits in cash or on deposit with the central bank. Gross interestinterest earned before taxes are deducted. Guaranteed Interest Annuity (GIA)interest bearing investment with fixed rate and term. Guaranteed Interest Certificate (GIC)interest bearing investment with fixed rate and term. Insurable InterestIn England in the 1700's it was popular to bet on the date of death of certain prominent public figures. Anyone could buy life insurance on another's life, even without their consent. Unfortunately, some died before it was their time, dispatched prematurely in order that the life insurance proceeds could be collected. In 1774, English Parliament passed a law which restricted the right to be a beneficiary on a life insurance contract to those who would suffer an economic loss when the life insured died. The law also provided that a person has an unlimited insurable interest in his own life. It is still a legal stipulation that an insurance contract is not valid unless insurable interest exists at the time the policy is issued. Life Insurance companies will not, however, issue unlimited amounts of coverage to an individual. The amount of life insurance which will be approved has to approximate the loss caused by the death of the individual and must not result in a windfall for the beneficiary. InterestThe price paid for borrowing money. It is expressed as a percentage rate over a period of time and InterestThe cost of money, received on investments or paid on borrowings. InterestThe cost of funds loaned to an entity. It can also refer to the equity ownership InterestA charge for the use of money supplied by a lender. interestThe cost of a loan or the compensation paid for the use of money. For example, you are paid interest for deposits you make into a savings account, and you pay interest for money that you borrow from a low-cost borrowing account. Interest coverage ratioThe ratio of the earnings before interest and taxes to the annual interest expense. This Interest coverage testA debt limitation that prohibits the issuance of additional long-term debt if the issuer's Interest equalization taxTax on foreign investment by residents of the U.S. which was abolished in 1974. Interest FactorNumbers found in compound interest and annuity tables. Usually called the FVIF or PVIF. Interest incomeIncome that a company receives in the form of interest, usually as the result of keeping money in interest-bearing accounts at financial institutions and the lending of money to other companies. Interest on interestinterest earned on reinvestment of each interest payment on money invested. Interest-only strip (IO)A security based solely on the interest payments form a pool of mortgages, Treasury Interest OptionOne of several investment accounts in which your premiums may be invested within your life insurance policy. Interest payableThe amount of interest that is owed but has not been paid at the end of a period. Interest paymentsContractual debt payments based on the coupon rate of interest and the principal amount. Interest RateCost of using money, expressed as a rate per period of time, usually one year. Interest RateRate charged or paid for the use of money, normally expressed as a percentage Interest rate agreementAn agreement whereby one party, for an upfront premium, agrees to compensate the Interest rate capAlso called an interest rate ceiling, an interest rate agreement in which payments are made
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