G-6 Glossary
bre44380_glo_G1-G18 6 10/08/15 06:54 AM
Discount loan Bank loan where interest is deducted up
front.
Discounted cash flow (DCF) Future cash flows multiplied
by discount factors to obtain present value.
Discount factor Present value of $1 received at a stated
future date.
Discount rate Rate used to calculate the present value of
future cash flows.
Discounted payback rule Requirement that discounted
values of cash flows should be sufficient to pay back initial
investment within a specified time.
Discriminatory price auction Auction in which
successful bidders pay the price that they bid (cf. uniform
price auction).
Disintermediation Withdrawal of funds from a
financial institution in order to invest them directly (cf.
intermediation).
Dividend Payment by a company to its stockholders.
Dividend discount model Model showing that the
value of a share is equal to the discounted value of future
dividends.
Dividend reinvestment plan (DRIP) Plan that allows
shareholders to reinvest dividends automatically.
Dividend yield Annual dividend divided by share price.
Dodd-Frank Act 2010 legislation to amend regulation of
financial markets and banks.
DOL Degree of operating leverage.
Double-declining-balance depreciation Method of
accelerated depreciation.
Double-tax agreement Agreement between two countries
that taxes paid abroad can be offset against domestic taxes
levied on foreign dividends.
Down-and-in option Barrier option that comes into
existence if asset price hits a barrier.
Down-and-out option Barrier option that expires if asset
price hits a barrier.
DRIP Dividend reinvestment plan.
Drop lock An arrangement whereby the interest rate on a
floating-rate note or preferred stock becomes fixed if it falls
to a specified level.
DTC Depository transfer check.
Dual-class equity Shares with different voting rights.
Dual-currency bond Bond with interest paid in one
currency and principal paid in another.
Du Pont formula Formula expressing relationship between
return on assets, sales-to-assets, profit margin, and measures
of leverage.
Duration The average number of years to an asset’s
discounted cash flows.Decision tree Method of representing alternative
sequential decisions and the possible outcomes from these
decisions.
Defeasance Practice whereby the borrower sets aside cash
or bonds sufficient to service the borrower’s debt. Both the
borrower’s debt and the offsetting cash or bonds are removed
from the balance sheet.
Deferred tax Asset or liability that arises from differences
between the tax expense shown in the income statement and
the tax actually paid.
Degree of operating leverage (DOL) The percentage
change in profits for a 1% change in sales.
Delta Hedge ratio.
Depository transfer check (DTC) Check made out
directly by a local bank to a particular company.
Depreciation (1) Reduction in the book or market value of
an asset; (2) portion of an investment that can be deducted
from taxable income.
Depreciation tax shield The extra after-tax income that
results from the depreciation deduction from taxable income.
Derivative Asset whose value derives from that of some
other asset (e.g., a future or an option).
Designated market maker Member of NYSE responsible
for market in specified securities (formerly called
“specialist”).
Diff Differential swap.
Differential swap (diff, quanto swap) Swap between two
LIBOR rates of interest, e.g., yen LIBOR for dollar LIBOR.
Payments are in one currency.
Digital option Option paying fixed sum if asset price is the
right side of exercise price, otherwise zero.
Dilution Diminution in the proportion of income to which
each share is entitled.
DIP financing Debtor-in–possession financing.
Direct deposit The firm authorizes its bank to deposit
money in the accounts of its employees or shareholders.
Direct lease Lease in which the lessor purchases new
equipment from the manufacturer and leases it to the lessee
(cf. sale and lease-back).
Direct payment (automatic debit, direct debit) The
firm’s customers authorize it to debit their bank accounts for
the amounts due (cf. direct deposit).
Direct quote For foreign exchange, the number of U.S.
dollars needed to buy one unit of a foreign currency (cf.
indirect quote).
Dirty price Bond price including accrued interest, i.e., the
price paid by the bond buyer (cf. clean price).
Discount bond Debt sold for less than its principal value.
If a discount bond pays no interest, it is called a “pure”
discount, or zero-coupon, bond.