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Financial Terms | |
Gamma |
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Definition of GammaGammaThe rate of change of delta for a derivative security relative to the GammaThe ratio of a change in the option delta to a small change in the price of the asset on which the
Related Terms:GreeksCollectively, "greeks" refer to the financial measures delta, gamma, "Soft" Capital RationingCapital rationing that under certain circumstances can be violated or even viewed Abandonment optionThe option of terminating an investment earlier than originally planned. Accelerated cost recovery system (ACRS)Schedule of depreciation rates allowed for tax purposes. Accelerated depreciationAny depreciation method that produces larger deductions for depreciation in the accelerated depreciation(1) The estimated useful life of the fixed asset being depreciated is ![]() Accelerated depreciationAny of several methods that recognize an increased amount Acceleration ClauseClause causing repayment of a debt, if specified events occur or are not met. Accelerationist HypothesisBelief that an effort to keep unemployment below its natural rate results in an accelerating inflation. Accounting changeAn 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 ratioA ratio computed by dividing annual Acid-test ratioAlso called the quick ratio, the ratio of current assets minus inventories, accruals, and prepaid ACID-TEST RATIOA 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: ![]() Acid-test RatioSee quick ratio acid test ratio (also called the quick ratio)The sum of cash, accounts receivable, and short-term marketable Acquisition of assetsA merger or consolidation in which an acquirer purchases the selling firm's assets. Active portfolio strategyA strategy that uses available information and forecasting techniques to seek a Adjustable rate preferred stock (ARPS)Publicly traded issues that may be collateralized by mortgages and MBSs. Adjusted Cash Flow Provided by Continuing OperationsCash flow provided by operating After-tax real rate of returnMoney after-tax rate of return minus the inflation rate. All equity rateThe discount rate that reflects only the business risks of a project and abstracts from the American optionAn option that may be exercised at any time up to and including the expiration date. American optionAn option that can be exercised any time until its American Stock Exchange (AMEX)The second-largest stock exchange in the United States. It trades ![]() American-style optionAn option contract that can be exercised at any time between the date of purchase and Amortizing interest rate swapSwap 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. Appraisal ratioThe signal-to-noise ratio of an analyst's forecasts. The ratio of alpha to residual standard Arbitrage-free option-pricing modelsYield curve option-pricing models. Arithmetic average (mean) rate of returnArithmetic mean return. Arm's length priceThe price at which a willing buyer and a willing unrelated seller would freely agree to Articles of incorporationLegal document establishing a corporation and its structure and purpose. Asian optionoption based on the average price of the asset during the life of the option. Ask priceA dealer's price to sell a security; also called the offer price. AssetAny possession that has value in an exchange. AssetA resource, recorded through a transaction, that is expected to yield a benefit to a AssetSomething that is owned; a financial claim or a piece of property that is a store of value. AssetProbable future economic benefit that is obtained or controlled by an entity as a result of assetAnything owned by, or owed to, an individual or business which has commercial or exchange value (e.g., cash, property, etc.). AssetAll things of value owned by an individual or organization. Asset activity ratiosratios that measure how effectively the firm is managing its assets. Asset allocation decisionThe decision regarding how an institution's funds should be distributed among the Asset-Backed SecuritiesBond or note secured by assets of company. Asset-backed securityA security that is collateralized by loans, leases, receivables, or installment contracts Asset-based financingMethods of financing in which lenders and equity investors look principally to the Asset-Based FinancingLoans granted usually by a financial institution where the asset being financed constitutes the sole security given to the lender. Asset classesCategories of assets, such as stocks, bonds, real estate and foreign securities. Asset CoverageExtent to which a company's net assets cover a particular debt obligation, class of preferred stock, or equity position. Asset-coverage testA bond indenture restriction that permits additional borrowing on if the ratio of assets to Asset/equity ratioThe ratio of total assets to stockholder equity. Asset for asset swapCreditors exchange the debt of one defaulting borrower for the debt of another Asset/liability managementAlso called surplus management, the task of managing funds of a financial asset mixThe weighting of assets in an investment portfolio among different asset classes (e.g. shares, bonds, property, cash, overseas investments. Asset pricing modelA model for determining the required rate of return on an asset. Asset pricing modelA model, such as the Capital asset Pricing Model (CAPM), that determines the required Asset-specific RiskThe amount of total risk that can be eliminated by diversification by Asset substitutionA firm's investing in assets that are riskier than those that the debtholders expected. Asset substitution problemArises when the stockholders substitute riskier assets for the firm's existing Asset swapAn interest rate swap used to alter the cash flow characteristics of an institution's assets so as to Asset turnoverThe ratio of net sales to total assets. asset turnovera ratio measuring asset productivity and showing the number of sales dollars generated by each dollar of assets asset turnover ratioA broad-gauge ratio computed by dividing annual AssetsA firm's productive resources. ASSETSAnything of value that a company owns. AssetsThings that the business owns. AssetsItems owned by the company or expenses that have been paid for but have not been used up. Assets requirementsA 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 Available-for-Sale SecurityA 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 (across-day) measuresAn estimation of price that uses the average or representative price of a Average rate of return (ARR)The ratio of the average cash inflow to the amount invested. Average tax rateTaxes as a fraction of income; total taxes divided by total taxable income. average tax rateTotal taxes owed divided by total income. Barbell strategyA strategy in which the maturities of the securities included in the portfolio are concentrated Bargain-purchase-price optionGives the lessee the option to purchase the asset at a price below fair market Barrier optionsContracts with trigger points that, when crossed, automatically generate buying or selling of Base interest rateRelated: Benchmark interest rate. Basic business strategiesKey strategies a firm intends to pursue in carrying out its business plan. Basic Earnings Power RatioPercentage of earnings relative to total assets; indication of how Basis priceprice expressed in terms of yield to maturity or annual rate of return. Basket optionsPackages that involve the exchange of more than two currencies against a base currency at Benchmark interest rateAlso called the base interest rate, it is the minimum interest rate investors will Benefit Ratio MethodThe proportion of unemployment benefits paid to a company’s Benefit Wage Ratio MethodThe proportion of total taxable wages for laid off Bid priceThis is the quoted bid, or the highest price an investor is willing to pay to buy a security. Practically Bill of exchangeGeneral term for a document demanding payment. Binomial option pricing modelAn option pricing model in which the underlying asset can take on only two Black-Scholes option-pricing modelA model for pricing call options based on arbitrage arguments that uses Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit CommitteesA committee formed in response to SEC chairman Arthur Levitt's initiative to improve the financial book rate of returnAccounting income divided by book value. Break-even payment rateThe prepayment rate of a MBS coupon that will produce the same CFY as that of Break-even tax rateThe tax rate at which a party to a prospective transaction is indifferent between entering Broker loan rateRelated: Call money rate. Bullet strategyA strategy in which a portfolio is constructed so that the maturities of its securities are highly Buy-and-hold strategyA passive investment strategy with no active buying and selling of stocks from the cafeteria plan a “menu” of fringe benefit options that includecash or nontaxable benefits Call an optionTo exercise a call option. Call money rateAlso called the broker loan rate , the interest rate that banks charge brokers to finance Related to : financial, finance, business, accounting, payroll, inventory, investment, money, inventory control, stock trading, financial advisor, tax advisor, credit. |