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Definition of Buydowns
Mortgages in which monthly payments consist of principal and interest, with portions of these
the combined discounts for lack of control and marketability. g the constant growth rate in cash flows or net income used in the ADF, Gordon model, or present value factor.
a generalization formula invented by Abrams that is the present value of regular but noncontiguous cash flows that have constant growth to perpetuity.
The accumulated coupon interest earned but not yet paid to the seller of a bond by the
Swap in which the principal or national amount rises (falls) as interest rates
The annual rate of return that when compounded t times, would have
The ratio of accounts receivables to sales, or the total
A loan in which two companies in separate countries borrow each other's currency for a
A statistical compilation formulated by a sovereign nation of all economic transactions
Related: Benchmark interest rate.
Also called the base interest rate, it is the minimum interest rate investors will
The requirement that a claim holder voting against a plan of reorganization
In the mortgage pipeline, the risk that prospective borrowers of loans committed to be
Related: Call money rate.
A mortgage loan on newly developed property that the builder subsidizes during the
A bank term loan that calls for no amortization.
interest that is not immediately expensed, but rather is considered as an asset and is then
Cash flow after interest and taxes
Net income plus depreciation.
Clearing House Automated Payments System (CHAPS)
A computerized clearing system for sterling funds
Clearing House Interbank Payments System (CHIPS)
An international wire transfer system for high-value
interest paid on previously earned interest as well as on the principal.
The length of the time period (for example, a quarter in the case of quarterly
on the other side of a trade or transaction.
The risk that the other party to an agreement will default. In an options contract, the risk
A bond's interest payments.
Covered interest arbitrage
A portfolio manager invests dollars in an instrument denominated in a foreign
The length of time for which the customer is granted credit.
Overnight, collateralized loan made to a dealer financing his position by borrowing from a
The period during which a customer can deduct the discount from the net amount of the bill
Discounted payback period rule
An investment decision rule in which the cash flows are discounted at an
Earnings before interest and taxes (EBIT)
A financial measure defined as revenues less cost of goods sold
Effective annual interest rate
An annual measure of the time value of money that fully reflects the effects of
Equilibrium rate of interest
The interest rate that clears the market. Also called the market-clearing interest
Given the after-tax stream associated with a lease, the maximum amount of conventional
The time interval over which a money manager's performance is evaluated.
Federal Home Loan Banks
The institutions that regulate and lend to savings and loan associations. The
A loan on which the rate paid by the borrower is fixed for the life of the loan.
Forward interest rate
interest rate fixed today on a loan to be made at some future date.
Freddie Mac (Federal Home Loan Mortgage Corporation)
A Congressionally chartered corporation that
GEMs (growing-equity mortgages)
Mortgages in which annual increases in monthly payments are used to
Generally Accepted Accounting Principals (GAAP)
A technical accounting term that encompasses the
Graduated-payment mortgages (GPMs)
A type of stepped-payment loan in which the borrower's payments
interest earned before taxes are deducted.
Length of time that an individual holds a security.
Holding period return
The rate of return over a given period.
loan made by one unit of a corporation to another unit of the same corporation.
The price paid for borrowing money. It is expressed as a percentage rate over a period of time and
Interest coverage ratio
The ratio of the earnings before interest and taxes to the annual interest expense. This
Interest coverage test
A debt limitation that prohibits the issuance of additional long-term debt if the issuer's
Interest equalization tax
Tax on foreign investment by residents of the U.S. which was abolished in 1974.
Contractual debt payments based on the coupon rate of interest and the principal amount.
Interest on interest
interest earned on reinvestment of each interest payment on money invested.
Interest-only strip (IO)
A security based solely on the interest payments form a pool of Mortgages, Treasury
Interest rate agreement
An agreement whereby one party, for an upfront premium, agrees to compensate the
Interest rate cap
Also called an interest rate ceiling, an interest rate agreement in which payments are made
Interest rate ceiling
Related: interest rate cap.
Interest rate floor
An interest rate agreement in which payments are made when the reference rate falls
Interest rate on debt
The firm's cost of debt capital.
Interest rate parity theorem
interest rate differential between two countries is equal to the difference
Interest rate risk
The risk that a security's value changes due to a change in interest rates. For example, a
Interest rate swap
A binding agreement between counterparties to exchange periodic interest payments on
A firm's deduction of the interest payments on its debt from its earnings before it calculates
Interest tax shield
The reduction in income taxes that results from the tax-deductibility of interest payments.
A secured short-term loan to purchase inventory. The three basic forms are a blanket
loans of $1 billion or more. Or, loans that exceed the statutory size limit eligible for purchase or
Lag response of prepayments
There is typically a lag of about three months between the time the weighted
Loan amortization schedule
The schedule for repaying the interest and principal on a loan.
Group of banks sharing a loan. See: syndicate.
The amount a policyholder may borrow against a whole life insurance policy at the interest rate
Monthly income preferred security (MIP)
Preferred stock issued by a subsidiary located in a tax haven.
Give the borrower the possibility of drawing a loan in different currencies.
loans usually represented by conventional Mortgages on multi-family rental apartments.
A portfolio strategy in which a portfolio is created that will be capable of
The period of time between the end of the discount period and the date payment is due.
In the Euromarket, a period over which Eurodollars are sold is said to be neutral if it does not
Nominal interest rate
The interest rate unadjusted for inflation.
Notional principal amount
In an interest rate swap, the predetermined dollar principal on which the
The total number of derivative contracts traded that not yet been liquidated either by an
A process whereby two companies in different countries borrow each other's currency for a
Reducing fund transfers between affiliates to only a netted amount. Netting can be done on
escribes the lagged collection pattern of receivables, for instance the probability that a
Pooling of interests
An accounting method for reporting acquisitions accomplished through the use of equity.
payments made in excess of scheduled mortgage principal repayments.
1) The total amount of money being borrowed or lent.
Principal of diversification
Highly diversified portfolios will have negligible unsystematic risk. In other
A situation that can be modeled as one person, an agent, who acts on the behalf
The face amount of debt; the amount borrowed or lent. Often called principal.
Principal only (PO)
A mortgage-backed security in which the holder receives only principal cash flows on
Project loan certificate (PLC)
A primary program of Ginnie Mae for securitizing FHA-insured and coinsured
Project loan securities
Securities backed by a variety of FHA-insured loan types - primarily multi-family
Usually FHA-insured and HUD-guaranteed Mortgages on multiple-family housing complexes,
RAMs (Reverse-annuity mortgages)
Mortgages in which the bank makes a loan for an amount equal to a
Rate of interest
The rate, as a proportion of the principal, at which interest is computed.
Real interest rate
The rate of interest excluding the effect of inflation; that is, the rate that is earned in terms
Remaining principal balance
The amount of principal dollars remaining to be paid under the mortgage as of
Savings and Loan association
National- or state-chartered institution that accepts savings deposits and
loan to finance current assets, The sale of the current assets provides the cash to repay
This is the total number of shares of a security that investors have borrowed, then sold in the
interest calculated only on the initial investment. Related:compound interest.
Spot interest rate
interest rate fixed today on a loan that is made today. Related: forward interest rates.
Stated annual interest rate
The interest rate expressed as a per annum percentage, by which interest
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