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Definition of Delta neutral
The value of the portfolio is not affected by changes in the value of the asset on which the
Also called the hedge ratio, the ratio of the change in price of a call option to the change in price of the
The rate of change of the price of a derivative security relative to the
A dynamic hedging strategy using options with continuous adjustment of the number of options
The ratio of volatility of the portfolio to be hedged and the return of the volatility of the
In the Euromarket, a period over which Eurodollars are sold is said to be neutral if it does not
The doctrine that the money supply affects only the price level, with no long-run impact on real variables.
Insensitive to risk.
Capital rationing that under certain circumstances can be violated or even viewed
The option of terminating an investment earlier than originally planned.
Schedule of depreciation rates allowed for tax purposes.
Any depreciation method that produces larger deductions for depreciation in the
(1) The estimated useful life of the fixed asset being depreciated is
Any of several methods that recognize an increased amount
Clause causing repayment of a debt, if specified events occur or are not met.
Belief that an effort to keep unemployment below its natural rate results in an accelerating inflation.
The sum of all the interest options in your policy, including interest.
An alteration in the accounting methodology or estimates used in
Accounting rate of return (ARR)
A method of investment appraisal that measures
accounting rate of return (ARR)
the rate of earnings obtained on the average capital investment over the life of a capital project; computed as average annual profits divided by average investment; not based on cash flow
accounts receivable turnover ratio
A ratio computed by dividing annual
An amount of money invested plus the interest earned on that money.
Also called the quick ratio, the ratio of current assets minus inventories, accruals, and prepaid
A ratio that shows how well a company could pay its current debts using only its most liquid or “quick” assets. It’s a more pessimistic—but Also realistic—measure of safety than the current ratio, because it ignores sluggish, hard-toliquidate current assets like inventory and notes receivable. Here’s the formula:
See quick ratio
acid test ratio (also called the quick ratio)
The sum of cash, accounts receivable, and short-term marketable
Acquisition of assets
A merger or consolidation in which an acquirer purchases the selling firm's assets.
Acquisition of stock
A merger or consolidation in which an acquirer purchases the acquiree's stock.
Active portfolio strategy
A strategy that uses available information and forecasting techniques to seek a
A protection against borrower fallout risk in the mortgage pipeline.
Adjustable rate preferred stock (ARPS)
Publicly traded issues that may be collateralized by mortgages and MBSs.
Adjusted Cash Flow Provided by Continuing Operations
Cash flow provided by operating
Adjusted present value (APV)
The net present value analysis of an asset if financed solely by equity
After-tax real rate of return
Money after-tax rate of return minus the inflation rate.
Aggregate Demand Curve
Combinations of the price level and income for which the goods and services market is in equilibrium, or for which both the goods and services market and the money market are in equilibrium.
Aggregate Expenditure Curve
Aggregate demand for goods and services drawn as a function of the level of national income.
Aggregate Supply Curve
Combinations of price level and income for which the labor market is in equilibrium. The short-run aggregate supply curve incorporates information and price/wage inflexibilities in the labor market, whereas the long-run aggregate supply curve does not.
All equity rate
The discount rate that reflects only the business risks of a project and abstracts from the
An option that may be exercised at any time up to and including the expiration date.
An option that can be exercised any time until its
American Stock Exchange (AMEX)
The second-largest stock exchange in the United States. It trades
An option contract that can be exercised at any time between the date of purchase and
Amortizing interest rate swap
Swap in which the principal or national amount rises (falls) as interest rates
Annual percentage rate (APR)
The periodic rate times the number of periods in a year. For example, a 5%
annual percentage rate (APR)
Interest rate that is annualized using simple interest.
The signal-to-noise ratio of an analyst's forecasts. The ratio of alpha to residual standard
approximated net realizable value at split-off allocation
a method of allocating joint cost to joint products using a
Arbitrage-free option-pricing models
Yield curve option-pricing models.
Arithmetic average (mean) rate of return
Arithmetic mean return.
Arm's length price
The price at which a willing buyer and a willing unrelated seller would freely agree to
Articles of incorporation
Legal document establishing a corporation and its structure and purpose.
option based on the average price of the asset during the life of the option.
A dealer's price to sell a security; Also called the offer price.
Any possession that has value in an exchange.
A resource, recorded through a transaction, that is expected to yield a benefit to a
Something that is owned; a financial claim or a piece of property that is a store of value.
Probable future economic benefit that is obtained or controlled by an entity as a result of
Anything owned by, or owed to, an individual or business which has commercial or exchange value (e.g., cash, property, etc.).
All things of value owned by an individual or organization.
Asset activity ratios
ratios that measure how effectively the firm is managing its assets.
Asset allocation decision
The decision regarding how an institution's funds should be distributed among the
Bond or note secured by assets of company.
A security that is collateralized by loans, leases, receivables, or installment contracts
Methods of financing in which lenders and equity investors look principally to the
Loans granted usually by a financial institution where the asset being financed constitutes the sole security given to the lender.
Categories of assets, such as stocks, bonds, real estate and foreign securities.
Extent to which a company's net assets cover a particular debt obligation, class of preferred stock, or equity position.
A bond indenture restriction that permits additional borrowing on if the ratio of assets to
The ratio of total assets to stockholder equity.
Asset for asset swap
Creditors exchange the debt of one defaulting borrower for the debt of another
Also called surplus management, the task of managing funds of a financial
The weighting of assets in an investment portfolio among different asset classes (e.g. shares, bonds, property, cash, overseas investments.
Asset pricing model
A model for determining the required rate of return on an asset.
Asset pricing model
A model, such as the Capital asset Pricing Model (CAPM), that determines the required
The amount of total risk that can be eliminated by diversification by
A firm's investing in assets that are riskier than those that the debtholders expected.
Asset substitution problem
Arises when the stockholders substitute riskier assets for the firm's existing
An interest rate swap used to alter the cash flow characteristics of an institution's assets so as to
The ratio of net sales to total assets.
a ratio measuring asset productivity and showing the number of sales dollars generated by each dollar of assets
asset turnover ratio
A broad-gauge ratio computed by dividing annual
A firm's productive resources.
Anything of value that a company owns.
Things that the business owns.
Items owned by the company or expenses that have been paid for but have not been used up.
A common element of a financial plan that describes projected capital spending and the
Auction rate preferred stock (ARPS)
Floating rate preferred stock, the dividend on which is adjusted every
A debt or equity security not classified as a held-to-maturity security or a trading security. Can be classified as a current or noncurrent investment depending on the intended holding period.
Average rate of return (ARR)
The ratio of the average cash inflow to the amount invested.
Average tax rate
Taxes as a fraction of income; total taxes divided by total taxable income.
average tax rate
Total taxes owed divided by total income.
A strategy in which the maturities of the securities included in the portfolio are concentrated
Gives the lessee the option to purchase the asset at a price below fair market
Contracts with trigger points that, when crossed, automatically generate buying or selling of
Base interest rate
Related: Benchmark interest rate.
Basic business strategies
Key strategies a firm intends to pursue in carrying out its business plan.
Basic Earnings Power Ratio
Percentage of earnings relative to total assets; indication of how
price expressed in terms of yield to maturity or annual rate of return.
Packages that involve the exchange of more than two currencies against a base currency at
Benchmark interest rate
Also called the base interest rate, it is the minimum interest rate investors will
Benefit Ratio Method
The proportion of unemployment benefits paid to a company’s
The amount of cash payable on a benefit.
Benefit Wage Ratio Method
The proportion of total taxable wages for laid off
Beta equation (Stocks)
The beta of a stock is determined as follows:
This is the quoted bid, or the highest price an investor is willing to pay to buy a security. Practically
Bill of exchange
General term for a document demanding payment.
Binomial option pricing model
An option pricing model in which the underlying asset can take on only two
Black-Scholes option-pricing model
A model for pricing call options based on arbitrage arguments that uses
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