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Discount rate |
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Discount rate1. The rate, per year, at which future values are diminished to make them comparable to values in the present. Can be either subjective (reflecting personal time preference) or objective (a market interest rate). 2. The interest rate that the Fed charges commercial banks for very short-term loans of reserves. One of the tools of monetary policy.Discount rateThe interest rate at which the US Federal Reserve lends money to member banks.Similar MatchesDividend discount modelDividend discount modelA way of valuing a share based on the net present value of the dividends that you expect to receive in the future.The simplest version of the model assumes that the company's dividend rate remains constant. The 'fair' price of the share is the dividend (in pennies per share) divided by the required rate of return. So if you want 10% a year from your shares, the value of a company paying a 7p dividend is 70p. If you think a return of 8% is satisfactory, the value of the same share is 87.5p.A more complex model assumes that the dividends of the company grow at a consistent rate. The fair price to pay is the next dividend divided by the required rate of return minus the rate at which dividends are expected to grow. So if the 7p dividend is expected to grow at 5% per year, an investor requiring an 12% return would value the shares at (7p x 1.05) divided by (0.12 - 0.05)= (7.35p) divided by (0.07)= 105p Discounted payback period ruleDiscounted payback period ruleAn investment decision rule in which cash flows are discounted at an interest rate and one determines how long it takes for the sum of the discounted cash flows to equal the initial investment. Dividend Discount ReturnDividend Discount ReturnThe rate of return which equates the present value of future expected dividends with the current market price of a security. Discount securitiesDiscount securitiesNon-interest-bearing money market instruments that are issued at a discount and redeemed at maturity for full face value, e.g., US Treasury bills. DiscountDiscountThe difference between the net asset value (NAV) per share of an investment trust and the share price, expressed as a percentage of the net asset value per share.e.g. if the NAV is £3.00, and the share price of the trust is £2.70, the trust is trading at a 10% discount to its NAV.When the share price is above the net asset value, it is said to be trading at a premium. Further SuggestionsAccretion (of a discount)Discount yield Pure discount bond Discounted dividend model (DDM) Documented discount notes Deep discount bond Accrued discount Forward discount Discount factor Discount period Discount Interest Discount Arbitrage Rediscount Volume discount Discount window Discounted basis Discount payment bond discount discounted cashflow Straight Discount Discounting Unamortized bond discount discounted rate mortgage Original issue discount debt (OID debt) Underwriters discount |
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