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Definition of Consumption Function
The relationship between consumption demand and disposable income. More generally, it refers to the relationship between consumption demand and all factors that affect this demand.
The probability function for a continuous random variable.
A function that assigns a probability to each and every possible outcome.
A mathematical expression that assigns a value to all possible choices. In portfolio theory the
a separation of costs into groups based on the similar reason for their incurrence; it includes
the linear mathematical equation that
An equation determining aggregate output as a function of aggregate inputs such as labor and capital.
The probability of not achieving a portfolio expected return.
A function that shows the probability that the random variable will
A probability distribution for a continuous random variable that is forms a
The relative likelihood of a particular outcome among all possible outcomes.
Also called a probability function, a function that describes all the values that the random variable can
A list of all possible outcomes and the chance of each outcome
a range of possible values for which each value has an assigned likelihood of occurrence
The discount rate that reflects only the business risks of a project and abstracts from the
All or none
Requirement that none of an order be executed unless all of it can be executed at the specified price.
Total costs, explicit and implicit.
An arrangement whereby a security issue is canceled if the underwriter is unable
Asset allocation decision
The decision regarding how an institution's funds should be distributed among the
Any large principal payment due at maturity for a bond or loan with or without a a sinking
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.
Call an option
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.
Communication barrier between financiers (investment bankers) and traders. this barrier is
Conflict between bondholders and stockholders
These two groups may have interests in a corporation that
The process of accumulating the time value of money forward in time on a
Continuous random variable
A random value that can take any fractional value within specified ranges, as
Rules set by the Chicago Board of Trade for determining the invoice price of each
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
Checking accounts that pay no interest and can be withdrawn upon demand.
Demand line of credit
A bank line of credit that enables a customer to borrow on a daily or on-demand basis.
Demand master notes
Short-term securities that are repayable immediately upon the holder's demand.
An event that affects the demand for goods in services in the economy.
Discrete random variable
A random variable that can take only a certain specified set of discrete possible
Dynamic asset allocation
An asset allocation strategy in which the asset mix is mechanistically shifted in
Cash flow plus change in present value.
Effective call price
The strike price in an optional redemption provision plus the accrued interest to the
A value determined within the context of a model.
A variable whose value is determined outside the model in which it is used. Also called
Expected return-beta relationship
Implication of the CAPM that security risk premiums will be
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
With CMOs, the start of the cash flow cycle for the cash flow window.
Also called a busted convertible, a convertible security that is trading like a straight
Assets that pay a fixed-dollar amount, such as bonds and preferred stock.
The market for trading bonds and preferred stock.
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
demands for securities to hedge particular sources of consumption risk, beyond the usual
The right of the homeowner to prepay, or call, the mortgage at any time.
One who receives income from a trust.
A bond on which the payment of interest is contingent on sufficient earnings. These bonds are
A mutual fund providing for liberal current income from investments.
Income statement (statement of operations)
A statement showing the revenues, expenses, and income (the
Common stock with a high dividend yield and few profitable investment opportunities.
The sale of an asset in exchange for a specified series of payments (the installments).
Internally efficient market
Operationally efficient market.
The revenue from a portfolio of invested assets.
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
Money market demand account
An account that pays interest based on short-term interest rates.
Monthly income preferred security (MIP)
Preferred stock issued by a subsidiary located in a tax haven.
Mutually exclusive investment decisions
Investment decisions in which the acceptance of a project
The company's total earnings, reflecting revenues adjusted for costs of doing business,
Non-parallel shift in the yield curve
A shift in the yield curve in which yields do not change by the same
Normal random variable
A random variable that has a normal probability distribution.
Operationally efficient market
Also called an internally efficient market, one in which investors can obtain
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
Precautionary demand (for money)
The need to meet unexpected or extraordinary contingencies with a
A relationship espoused by some technical analysts that signals continuing rises
A situation that can be modeled as one person, an agent, who acts on the behalf
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.
A function that assigns a real number to each and every possible outcome of a random experiment.
Theory that stock price changes from day to day are at random; the changes are independent
A strategy of introducing into the decision-making process a random element that is
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
Speculative demand (for money)
The need for cash to take advantage of investment opportunities that may arise.
Also called margin income, the difference between income and cost. For a depository
Tactical Asset Allocation (TAA)
An asset allocation strategy that allows active departures from the normal
Gross income less a set of deductions.
Transaction demand (for money)
The need to accommodate a firm's expected cash transactions.
A short call option position in which the writer does not own shares of underlying stock
For an insurance company, the difference between the premiums earned and the costs
A mathematical expression that assigns a value to all possible choices. In portfolio theory the
A value determined within the context of a model. Also called endogenous variable.
Annuity contracts in which the issuer pays a periodic amount linked to the investment
A cost that is directly proportional to the volume of output produced. When production is zero,
Variable life insurance policy
A whole life insurance policy that provides a death benefit dependent on the
Variable price security
A security, such as stocks or bonds, that sells at a fluctuating, market-determined price.
Variable rate CDs
Short-term certificate of deposits that pay interest periodically on roll dates. On each roll
Variable rated demand bond (VRDB)
Floating rate bond that can be sold back periodically to the issuer.
Variable rate loan
Loan made at an interest rate that fluctuates based on a base interest rate such as the
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