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Financial Terms | |
risk-adjusted discount rate method |
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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: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 accelerated depreciation(1) The estimated useful life of the fixed asset being depreciated is Accelerated depreciationAny of several methods that recognize an increased amount Accounting rate of return (ARR)A method of investment appraisal that measures accounting rate of return (ARR)the rate of earnings obtained on the average capital investment over the life of a capital project; computed as average annual profits divided by average investment; not based on cash flow 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 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. Adjustable rate preferred stock (ARPS)Publicly traded issues that may be collateralized by mortgages and MBSs. Adjusted Cash Flow Provided by Continuing OperationsCash flow provided by operating Adjusted EarningsNet income adjusted to exclude selected nonrecurring and noncash items of reserve, gain, expense, and loss. Adjusted EBITDAConventional earnings before interest, taxes, depreciation, and amortization (EBITDA) revised to exclude the effects of mainly nonrecurring items of revenue or gain and expense or loss. Adjusted Income from ContinuingOperations Reported income from continuing operations 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. algebraic methoda process of service department cost allocation All equity rateThe discount rate that reflects only the business risks of a project and abstracts from the Allowance methodA method of adjusting accounts receivable to the amount that is expected to be collected based on company experience. 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% annual percentage rate (APR)Interest rate that is annualized using simple interest. Arithmetic average (mean) rate of returnArithmetic mean return. Asset-specific RiskThe amount of total risk that can be eliminated by diversification by Auction rate preferred stock (ARPS)Floating rate preferred stock, the dividend on which is adjusted every Average-Cost Inventory MethodThe inventory cost-flow assumption that assigns the average 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. average tax rateTotal taxes owed divided by total 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 Benefit Ratio MethodThe proportion of unemployment benefits paid to a company’s Benefit Wage Ratio MethodThe proportion of total taxable wages for laid off Beta riskrisk of a firm measured from the standpoint of an investor who holds a highly diversified portfolio. Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit CommitteesA committee formed in response to SEC chairman Arthur Levitt's initiative to improve the financial book rate of returnAccounting income divided by book value. Bootstrapping, bootstrap methodAn arithmetic method for backing an 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 Capitalization RateA discount rate used to find the present value of a series of future cash receipts. Sometimes called discount rate. cash burn rateA relatively recent term that refers to how fast a business 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 Companyspecific RiskSee asset-specific risk compensation strategya foundation for the compensation plan that addresses the role compensation should play in the organization Completed-Contract MethodA contract accounting method that recognizes contract revenue Completion riskThe risk that a project will not be brought into operation successfully. computer integrated manufacturing (CIM)the integration of two or more flexible manufacturing systems through the use of a host computer and an information networking system confrontation strategyan organizational strategy in which company management decides to confront, rather than avoid, competition; an organizational strategy in which company management still attempts to differentiate company ConglomerateA firm engaged in two or more unrelated businesses. Conglomerate mergerA merger involving two or more firms that are in unrelated businesses. 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 Contribution RateThe percentage tax charged by a state to an employer to 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 cost leadership strategya plan to achieve the position in a 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 Coupon RateThe rate of interest paid on a debt security. Generally stated on an Coupon rateThe nominal interest rate that the issuer promises to pay the coupon rateAnnual interest payment as a percentage of face value. 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 Credit RiskFinancial and moral risk that an obligation will not be paid and a loss will result. Crediting rateThe interest rate offered on an investment type insurance policy. Cross-border riskRefers to the volatility of returns on international investments caused by events associated Cross ratesThe exchange rate between two currencies expressed as the ratio of two foreign exchange rates 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 Related to : financial, finance, business, accounting, payroll, inventory, investment, money, inventory control, stock trading, financial advisor, tax advisor, credit. |