D

Declining Balance DepreciationA method of computing the annual charge for depreciation. The amount of depreciation is obtained by applying a fixed percent to the diminishing balance of the asset account; that is, the balance after deducting the preceding period’s depreciation.

Declining FactorThe factor which determines the fixed percent to be applied in the Declining Balance Depreciation method. The percent or rate of depreciation is determined by dividing the declining factor by the asset’s life (in years) and simply multiplying the result by 100 in order to express it as a percent.

Depreciation(See Sum-of-the-Digits Amortization, Declining Balance Depreciation, Declining Factor).

Direct Reduction LoanA loan in which the interest portion of the periodic payment is computed for the amount of the principal base outstanding for that period. The new principal base is then established by subtracting the remaining portion of the loan payment amount that was not designated as interest.

DiscountThe difference between the worth of a future benefit and its present value.

Discounted Cash FlowA cash flow occurring some time in the future which has been discounted by a given discount factor on a compounded basis; the present value of a future cash flow.

Discounted NoteAn instrument of indebtedness specifying the full repayment amount as par or face value. The current proceeds of the note are thus less than the face value, the difference representing the interest portion or the discount amount.

Discounted Rate of ReturnThe effective periodic rate that would equate the present value of an investment with the accumulated present values of a stream of future cash flows, each appropriately discounted by the periodic rate.

E

Effective RateThe ratio of income, periodically realized, to market value of an investment or to a sum invested; usually expressed on an annual basis and as a percent.

Effective Yield(See Effective Rate)