Financial Terms | |
risk-adjusted discount rate method |
Information about financial, finance, business, accounting, payroll, inventory, investment, money, inventory control, stock trading, financial advisor, tax advisor, credit.
Main Page: stock trading, tax advisor, financial advisor, investment, money, accounting, payroll, business, |
Definition of risk-adjusted discount rate methodrisk-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
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 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 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 Adjustable rate preferred stock (ARPS)Publicly traded issues that may be collateralized by mortgages and MBSs. Adjusted present value (APV)The net present value analysis of an asset if financed solely by equity After-tax real rate of returnMoney after-tax rate of return minus the inflation rate. All equity rateThe discount rate that reflects only the business risks of a project and abstracts from the 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% 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. Bank discount basisA convention used for quoting bids and offers for treasury bills in terms of annualized Bankruptcy riskThe risk that a firm will be unable to meet its debt obligations. Also referred to as default or insolvency risk. 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. Basis riskThe uncertainty about the basis at the time a hedge may be lifted. Hedging substitutes basis risk for Benchmark interest rateAlso called the base interest rate, it is the minimum interest rate investors will 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 Business riskThe risk that the cash flow of an issuer will be impaired because of adverse economic 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 Call riskThe combination of cash flow uncertainty and reinvestment risk introduced by a call provision. Capitalization methodA method of constructing a replicating portfolio in which the manager purchases a 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 Commercial riskThe risk that a foreign debtor will be unable to pay its debts because of business events, Company-specific riskRelated: Unsystematic risk Completion riskThe risk that a project will not be brought into operation successfully. ConglomerateA firm engaged in two or more unrelated businesses. Conglomerate mergerA merger involving two or more firms that are in unrelated businesses. 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 Counterparty riskThe risk that the other party to an agreement will default. In an options contract, the risk Country financial riskThe ability of the national economy to generate enough foreign exchange to meet Country risk GeneralLevel of political and economic uncertainty in a country affecting the value of loans or Coupon rateIn bonds, notes or other fixed income securities, the stated percentage rate of interest, usually 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 Credit riskThe risk that an issuer of debt securities or a borrower may default on his obligations, or that 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 Cross-border riskRefers to the volatility of returns on international investments caused by events associated Crossover rateThe return at which two alternative projects have the same net present value. Currency riskRelated: Exchange rate risk Currency risk sharingAn agreement by the parties to a transaction to share the currency risk associated with 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 Default riskAlso referred to as credit risk (as gauged by commercial rating companies), the risk that an Direct estimate methodA method of cash budgeting based on detailed estimates of cash receipts and cash 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. Diversifiable riskRelated: unsystematic risk. Dividend discount model (DDM)A model for valuing the common stock of a company, based on the Dividend rateThe fixed or floating rate paid on preferred stock based on par value. Documented discount notesCommercial paper backed by normal bank lines plus a letter of credit from a Dollar-weighted rate of returnAlso called the internal rate of return, the interest rate that will make the Economic riskIn project financing, the risk that the project's output will not be salable at a price that will Effective annual interest rateAn annual measure of the time value of money that fully reflects the effects of Effective rateA measure of the time value of money that fully reflects the effects of compounding. Equilibrium market price of riskThe slope of the capital market line (CML). Since the CML represents the Equilibrium rate of interestThe interest rate that clears the market. Also called the market-clearing interest Event riskThe risk that the ability of an issuer to make interest and principal payments will change because Exchange rateThe price of one country's currency expressed in another country's currency. Exchange Rate Mechanism (ERM)The methodology by which members of the EMS maintain their Exchange rate riskAlso called currency risk, the risk of an investment's value changing because of currency Exchange riskThe variability of a firm's value that results from unexpected exchange rate changes or the Fallout riskA type of mortgage pipeline risk that is generally created when the terms of the loan to be Federal funds rateThis is the interest rate that banks with excess reserves at a Federal Reserve district bank
Related to : financial, finance, business, accounting, payroll, inventory, investment, money, inventory control, stock trading, financial advisor, tax advisor, credit. |