Discount basis and Rebasing: Difference between pages

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This term can refer either to the cash flows of an instrument (Discount instruments) or to its basis of market quotation (Discount rate).
1. ''Index numbers''.


In the context of index numbers, rebasing can refer to either:


<span style="color:#4B0082">'''Example: Discount basis calculation'''</span>
- changing the weights in an index, such as an inflation index,


An instrument is quoted - on a <u>discount basis</u>, one period before its maturity - at a discount of 10% per period.
- changing the reference period of an index number series.


This means that it is currently trading at a price of 100% LESS 10% = 90% of its terminal value.


(The periodic ''yield'' on this instrument is 10% / 90% = 11.11%.  So if the same instrument had been quoted on a <u>yield basis</u>, then the quoted yield per period = 11.11%.)
The weights and the reference period may be changed at the same time.




The relationship between the periodic discount rate (d) and the periodic yield (r) is:
2. ''Tax.''


r = d / (1 - d)
In relation to tax, rebasing means re-stating the base value of an asset for tax calculation purposes.


So in this case:
The re-statement would usually be upward, thereby reducing any potentially taxable gain calculated on any surplus over the base value.
 
r = 0.10 / (1 - 0.10)
 
r = 0.10 / 0.90
 
= 11.11%




== See also ==
== See also ==
* [[Discount instruments]]
* [[Assets]]
* [[Discount rate]]
* [[Base value]]
* [[Effective annual rate]]
* [[Capital gain]]
* [[Nominal annual rate]]
* [[Capital Gains Tax]]
* [[Periodic discount rate]]
* [[Corporation Tax]]
* [[Periodic yield]]
* [[Index]]
* [[Sterling commercial paper]]
* [[US commercial paper]]
* [[Yield basis]]


[[Category:Corporate_finance]]
[[Category:Accounting,_tax_and_regulation]]

Latest revision as of 07:21, 4 March 2022

1. Index numbers.

In the context of index numbers, rebasing can refer to either:

- changing the weights in an index, such as an inflation index,

- changing the reference period of an index number series.


The weights and the reference period may be changed at the same time.


2. Tax.

In relation to tax, rebasing means re-stating the base value of an asset for tax calculation purposes.

The re-statement would usually be upward, thereby reducing any potentially taxable gain calculated on any surplus over the base value.


See also

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