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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: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. 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 Accrued interestThe accumulated coupon interest earned but not yet paid to the seller of a bond by the 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 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. Covered interest arbitrageA portfolio manager invests dollars in an instrument denominated in a foreign 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. 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 Earnings before interest and taxes (EBIT)A financial measure defined as revenues less cost of goods sold Effective annual interest rateAn annual measure of the time value of money that fully reflects the effects of Equilibrium rate of interestThe interest rate that clears the market. Also called the market-clearing interest 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. Gross interestinterest earned before taxes are deducted. InterestThe price paid for borrowing money. It is expressed as a percentage rate over a period of time and 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 paymentsContractual debt payments based on the coupon rate of interest and the principal amount. 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 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 Interest rate ceilingRelated: interest rate cap. Interest rate floorAn interest rate agreement in which payments are made when the reference rate falls Interest rate on debtThe firm's cost of debt capital. Interest rate parity theoreminterest rate differential between two countries is equal to the difference Interest rate riskThe risk that a security's value changes due to a change in interest rates. For example, a Interest rate swapA binding agreement between counterparties to exchange periodic interest payments on Interest subsidyA firm's deduction of the interest payments on its debt from its earnings before it calculates Interest tax shieldThe reduction in income taxes that results from the tax-deductibility of interest payments. Nominal interest rateThe interest rate unadjusted for inflation. Open interestThe total number of derivative contracts traded that not yet been liquidated either by an Original issue discount debt (OID debt)Debt that is initially offered at a price below par. Pooling of interestsAn accounting method for reporting acquisitions accomplished through the use of equity. Pure-discount bondA bond that will make only one payment of principal and interest. Also called a zerocoupon Rate of interestThe rate, as a proportion of the principal, at which interest is computed. Real interest rateThe rate of interest excluding the effect of inflation; that is, the rate that is earned in terms Short interestThis is the total number of shares of a security that investors have borrowed, then sold in the Simple interestinterest calculated only on the initial investment. Related:compound interest. Spot interest rateinterest rate fixed today on a loan that is made today. Related: forward interest rates. Stated annual interest rateThe interest rate expressed as a per annum percentage, by which interest Times-interest-earned ratioEarnings before interest and tax, divided by interest payments. True interest costFor a security such as commercial paper that is sold on a discount basis, the coupon 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. 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. InterestThe cost of money, received on investments or paid on borrowings. Profit before interest and taxes (PBIT)See EBIT. 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 payableThe amount of interest that is owed but has not been paid at the end of a period. 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 earnings before interest and income tax (EBIT)A measure of profit that times interest earnedA ratio that tests the ability of a business to make Accrued InterestThe amount of interest accumulated on a debt security between Compound Interestinterest paid on principal and on interest earned in previous 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 Effective Interest RateThe rate of interest actually earned on an investment. It is Nominal Interest RateThe rate of interest quoted, or stated, to be paid on a security Real Interest RateThe rate of interest paid on an investment adjusted for inflation Simple Interestinterest paid only on the principal; calculated by multiplying the Times Interest Earned RatioA measure of how well a company is able to meet its interest ad hoc discounta price concession made under competitive pressure (real or imagined) that does not relate to quantity purchased 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 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 simple interesta method of determining interest in which interest is earned only on the original investment (or principal) amount Discount curveThe curve of discount rates vs. maturity dates for bonds. Discounted cash flowA technique that determines the present value of future cash InterestThe cost of funds loaned to an entity. It can also refer to the equity ownership
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