Periodic discount rate and Ranking: Difference between pages

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imported>Doug Williamson
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__NOTOC__
1.  ''Credit risk - insolvency.''
A cost of borrowing - or rate of return - expressed as:


*The excess of the amount at the end over the amount at the start
Priority ordering of payouts in a insolvency.
*Divided by the amount at the end


Ranking is particularly important when there are insufficient assets to satisfy all claims.


==Example 1==
GBP 1 million is borrowed.


GBP 1.03 million is repayable at the end of the period.  
2. ''Bank regulation - liquidity.''


The ordering of liquidity quality of assets, for regulatory liquidity quality.


The periodic discount rate (d) is:


d = (End amount - start amount) / End amount
3.  ''Other evaluations.''


''or''
Any other systematic ordering by quality or importance.


d = (End - Start) / End


== See also ==
* [[An introduction to equity capital]]
* [[Credit rating]]
* [[Credit risk]]
* [[Dilution]]
* [[Greenium]]
* [[Hierarchy]]
* [[Insolvency]]
* [[Level 1B liquid assets]]
* [[Merit order]]
* [[Net promoter score]]
* [[Obligation]]
* [[Order]]
* [[Pari passu]]
* [[Pari passu clause]]
* [[Preference]]
* [[Rank]]
* [[Ratings]]
* [[Report card]]
* [[Senior]]
* [[Seniority]]
* [[Statement of affairs]]
* [[Structural subordination]]
* [[Subordination]]
* [[Time subordination]]
* [[Unsecured creditor]]


= (1.03 - 1) / 1.03
[[Category:Accounting,_tax_and_regulation]]
 
[[Category:The_business_context]]
= 0.029126
[[Category:Identify_and_assess_risks]]
 
[[Category:Manage_risks]]
= '''2.9126%'''
 
 
==Example 2==
GBP 0.97 million is borrowed or invested
 
GBP 1.00 million is repayable at the end of the period.
 
 
The periodic discount rate (d) is:
 
= (End - Start) / End
 
= (1.00 - 0.97) / 1.00
 
= 0.030000
 
= '''3.0000%'''
 
 
==Example 3==
GBP  0.97 million is borrowed.
 
The periodic discount rate is 3.0000%.
 
Calculate the amount repayable at the end of the period.
 
===Solution===
The periodic discount rate (d) is defined as:
 
d = (End - Start) / End
 
d = (End / End) - (Start / End)
 
d =    1      - (Start / End)
 
 
''Rearranging this relationship:''
 
(Start / End) = 1 - d
 
Start = End x (1 - d)
 
Start / (1 - d) = End
 
End = Start / (1 - d)
 
 
''Substituting the given information into this relationship:''
 
End = GBP 0.97m / (1 - 0.030000)
 
= GBP 0.97m / 0.97
 
= '''GBP 1.00m'''
 
 
==Example 4==
An investment will pay out a single amount of GBP 1.00m at its final maturity after one period.
 
The periodic discount rate is 3.0000%.
 
Calculate the amount invested at the start of the period.
 
===Solution===
As before, the periodic discount rate (d) is defined as:
 
d = (End - Start) / End
 
d = 1 - (Start/ End)
 
 
''Rearranging this relationship:''
 
(Start / End) = 1 - d
 
Start = End x (1 - d)
 
 
''Substitute the given data into this relationship:''
 
Start = GBP 1.00m x (1 - 0.030000)
 
= '''GBP 0.97m'''
 
 
 
==See also==
 
*[[Effective annual rate]]
*[[Certificate in Treasury Fundamentals]]
*[[Certificate in Treasury]]
*[[Discount rate]]
*[[Nominal annual rate]]
*[[Periodic yield]]
*[[Yield]]

Revision as of 20:56, 23 July 2022

1. Credit risk - insolvency.

Priority ordering of payouts in a insolvency.

Ranking is particularly important when there are insufficient assets to satisfy all claims.


2. Bank regulation - liquidity.

The ordering of liquidity quality of assets, for regulatory liquidity quality.


3. Other evaluations.

Any other systematic ordering by quality or importance.


See also

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