What Is a Discount Margin?

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Discount margin is defined in a very specific way in the world of business management. Learn about discount margin with help from a business consultant and marketing expert in this free video clip.

Part of the Video Series: Business Management
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Video Transcript

Hi, I'm Isaac Rodriguez, I'm a business consultant. I want to talk to you today, a little bit about, what is a discount margin? Discount margin is the expected return over a given reference rate for a bond, let's say, you've purchased a bond. And that bond has a return, say, it's five percent, but it floats based upon an index. It may base it's rate on the prime rate, as it fluctuates. But because of floating rate security, by definition, changes and fluctuates over time. The discount margin estimates the return over that period of time, from inception to maturity. Assuming that the floating rate will follow a certain pattern, and that margin creates a number. So, right now, the bond maybe, is showing five percent, but it could go down to four, or up to six. But the discount margin maybe one percent or five percent, or whatever it is, that it was estimated to be from inception to maturity. As that interest rate fluctuated throughout. I'm Isaac Rodriguez, and that's a discount margin.

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