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Definition of All-in cost
Total costs, explicit and implicit.
the assignment, using some reasonable basis,
The annual depreciation expense allowed by the Canadian Income Tax Act.
Schedule of depreciation rates allowed for tax purposes.
The argument that specifies that the various agency costs create a complex environment in
The incremental costs of having an agent make decisions for a principal.
The discount rate that reflects only the business risks of a project and abstracts from the
Requirement that none of an order be executed unless all of it can be executed at the specified price.
An arrangement whereby a security issue is canceled if the underwriter is unable
The decision regarding how an institution's funds should be distributed among the
A firm's required payout to the bondholders and to the stockholders expressed as a
Any large principal payment due at maturity for a bond or loan with or without a a sinking
The argument that expected indirect and direct bankruptcy costs offset the other
In the mortgage pipeline, the risk that prospective borrowers of loans committed to be
An option that gives the right to buy the underlying futures contract.
To exercise a call option.
A date before maturity, specified at issuance, when the issuer of a bond may retire part of the bond
Call money rate
Also called the broker loan rate , the interest rate that banks charge brokers to finance
An option contract that gives its holder the right (but not the obligation) to purchase a specified
The price, specified at issuance, at which the issuer of a bond may retire part of the bond at a
The price for which a bond can be repaid before maturity under a call provision.
A feature of some callable bonds that establishes an initial period when the bonds may not be
An embedded option granting a bond issuer the right to buy back all or part of the issue prior
The combination of cash flow uncertainty and reinvestment risk introduced by a call provision.
A swaption in which the buyer has the right to enter into a swap as a fixed-rate payer. The
A financial security such as a bond with a call option attached to it, i.e., the issuer has the right to
decision allocation of invested funds between risk-free assets versus the risky portfolio.
costs that increase with increases in the level of investment in current assets.
Communication barrier between financiers (investment bankers) and traders. This barrier is
Cost company arrangement
Arrangement whereby the shareholders of a project receive output free of
Cost of capital
The required return for a capital budgeting project.
Cost of carry
Related: Net financing cost
Cost of funds
Interest rate associated with borrowing money.
Cost of lease financing
A lease's internal rate of return.
Cost of limited partner capital
The discount rate that equates the after-tax inflows with outflows for capital
The net present value of an investment divided by the investment's initial cost. Also called
A short call option position in which the writer owns the number of shares of the underlying
Covered call writing strategy
A strategy that involves writing a call option on securities that the investor
A provision that prohibits the company from calling the bond before a certain date. During this
Dynamic asset allocation
An asset allocation strategy in which the asset mix is mechanistically shifted in
Effective call price
The strike price in an optional redemption provision plus the accrued interest to the
Equivalent annual cost
The equivalent cost per year of owning an asset over its entire life.
The difference between the execution price of a security and the price that would have
A type of mortgage pipeline risk that is generally created when the terms of the loan to be
Federally related institutions
Arms of the federal government that are exempt from SEC registration and
Financial distress costs
Legal and administrative costs of liquidation or reorganization. Also includes
With CMOs, the start of the cash flow cycle for the cash flow window.
A cost that is fixed in total for a given period of time and for given production levels.
costs, both implied and direct, associated with a transaction. Such costs include time, effort,
Generally Accepted Accounting Principals (GAAP)
A technical accounting term that encompasses the
A 1933 act in which Congress forbade commercial banks to own, underwrite, or deal in
The right of the homeowner to prepay, or call, the mortgage at any time.
Incremental costs and benefits
costs and benefits that would occur if a particular course of action were
Transaction costs that include the assessment of the investment merits of a financial asset.
The sale of an asset in exchange for a specified series of payments (the installments).
Internally efficient market
Operationally efficient market.
In the mortgage pipeline, risk that occurs when the originator commits loan terms to the
Irrational call option
The implied call imbedded in the MBS. Identified as irrational because the call is
A demand for additional funds because of adverse price movement. Maintenance margin
Market impact costs
Also called price impact costs, the result of a bid/ask spread and a dealer's price concession.
Market timing costs
costs that arise from price movement of the stock during the time of the transaction
Mutually exclusive investment decisions
Investment decisions in which the acceptance of a project
Net financing cost
Also called the cost of carry or, simply, carry, the difference between the cost of financing
Non-parallel shift in the yield curve
A shift in the yield curve in which yields do not change by the same
Operationally efficient market
Also called an internally efficient market, one in which investors can obtain
Opportunity cost of capital
Expected return that is foregone by investing in a project rather than in
The difference in the performance of an actual investment and a desired investment
A process whereby two companies in different countries borrow each other's currency for a
Parallel shift in the yield curve
A shift in the yield curve in which the change in the yield on all maturities is
Policy asset allocation
A long-term asset allocation method, in which the investor seeks to assess an
Price impact costs
Related: market impact costs
Provisional call feature
A feature in a convertible issue that allows the issuer to call the issue during the noncall
Put-call parity relationship
The relationship between the price of a put and the price of a call on the same
An upward movement of prices. Opposite of reaction.
cost to replace a firm's assets.
Round-trip transactions costs
costs of completing a transaction, including commissions, market impact
costs associated with locating a counterparty to a trade, including explicit costs (such as
costs that fall with increases in the level of investment in current assets.
The risk of falling short of any investment target.
The tendency of small firms (in terms of total market capitalization) to outperform the
Small issues exemption
Securities issues that involve less than $1.5 million are not required to file a
costs that have been incurred and cannot be reversed.
Tactical Asset Allocation (TAA)
An asset allocation strategy that allows active departures from the normal
costs of buying and selling marketable securities and borrowing. Trading costs include
The time, effort, and money necessary, including such things as commission fees and the
True interest cost
For a security such as commercial paper that is sold on a discount basis, the coupon rate
A short call option position in which the writer does not own shares of underlying stock
A cost that is directly proportional to the volume of output produced. When production is zero,
Generic term for firms that buy, sell, and underwrite securities.
Wall Street analyst
Related: Sell-side analyst.
Stock that has fallen out of favor with investors; tends to have a low P/E (price to earnings ratio).
Weighted average cost of capital
Expected return on a portfolio of all the firm's securities. Used as a hurdle
Yield to call
The percentage rate of a bond or note, if you were to buy and hold the security until the call date.
An assetâ€™s purchase price, plus costs associated with the purchase, like installation fees, taxes, etc.
Cost of goods sold
The cost of merchandise that a company sold this year. For manufacturing companies, the cost of raw
MACRS (Modified Accelerated Cost Recovery System)
A depreciation method created by the IRS under the Tax Reform Act of 1986. Companies must use it to depreciate all plant and equipment assets installed after December 31, 1986 (for tax purposes).
A method of costing in which all fixed and variable production costs are charged to products or services using an allocation base.
A method of costing that uses cost pools to accumulate the cost of significant business activities and then assigns the costs from the cost pools to products or services based on cost drivers.
Allocation base A measure of activity or volume such as labour
hours, machine hours or volume of production
costs that are identifiable with and able to be influenced by decisions made at the business
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