Discount factor and Margin: Difference between pages

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imported>Doug Williamson
(Align presentation of formula with Annuity Factor page.)
 
imported>Doug Williamson
(Expand.)
 
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(DF).  
1. ''Accounting''.  


Profit margin measures the surplus of revenues over relevant costs, often expressed as a percentage.


'''1.'''


Strictly, the number less than one which we multiply a future cash flow by, to work out its present value as:
2. ''Banking''.


PV = DF x future cashflow.
Net interest margin (NIM).




The periodic discount factor is calculated from the periodic yield as:
3. ''Bank lending''.


DF = (1 + periodic yield)<SUP>-1</SUP>
Lending margin is a percentage amount added to a market reference rate, to calculate the total rate of interest payable by a borrower.




Commonly abbreviated as DF(n,r) ''or'' DF<SUB>n,r</SUB>
4. ''Derivatives markets''.


Margin is a refundable cash deposit payable by market participants to protect other participants in the market against the risk of a default.


where


n = number of periods, ''and''
5. ''Financing''.


r = periodic cost of capital.
An amount built in to an interest rate or discount rate charged to a client to cover risk and a level of profit for the finance provider.




6. ''Secured lending''.


'''''Examples'''''
An amount deducted from the value of an asset used as collateral, to calculate the maximum amount of any loan to be secured against the asset.


For example,
Also known as a 'haircut'.
 
when the periodic cost of capital (r) = 6%
 
and the number of periods in the total time under review (n) = 1, then:
 
Discount factor = (1+r)<sup>-n</sup>
 
= 1.06<sup>-1</sup>
 
= '''0.9434'''
 
 
The greater the time delay, the smaller the Discount Factor.
 
For example,
 
when the periodic cost of capital = 6% as before,
 
but the number of periods delay increases to 2, then:
 
Discount factor = (1+r)<sup>-n</sup>
 
= 1.06<sup>-2</sup>
 
= '''0.8890'''
 
''(A smaller figure than the 0.9434 we calculated previously for just one period's delay.)''
 
 
 
'''2.'''  
 
Loosely,the yield or cost of capital used for the purpose of calculating Discount Factors. 
 
For example the 6% rate applied in definition 1. above.




== See also ==
== See also ==
* [[Annuity factor]]
* [[Collateral]]
* [[CertFMM]]
* [[Futures]]
* [[Compounding factor]]
* [[Haircut]]
* [[Factors]]
* [[Initial margin]]
* [[Present value]]
* [[Maintenance margin]]
* [[Margin call]]
* [[Margin risk]]
* [[NII]]
* [[NIM]]
* [[Stepped margin]]
* [[Tax sparing]]
* [[Variation margin]]
* [[WGMR]]

Revision as of 14:46, 24 August 2016

1. Accounting.

Profit margin measures the surplus of revenues over relevant costs, often expressed as a percentage.


2. Banking.

Net interest margin (NIM).


3. Bank lending.

Lending margin is a percentage amount added to a market reference rate, to calculate the total rate of interest payable by a borrower.


4. Derivatives markets.

Margin is a refundable cash deposit payable by market participants to protect other participants in the market against the risk of a default.


5. Financing.

An amount built in to an interest rate or discount rate charged to a client to cover risk and a level of profit for the finance provider.


6. Secured lending.

An amount deducted from the value of an asset used as collateral, to calculate the maximum amount of any loan to be secured against the asset.

Also known as a 'haircut'.


See also

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