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Definition of GNMA Midget
A gnma pass-through certificate backed by fixed rate mortgages with a 15 year maturity.
Mortgage-backed securities (MBS) on which registered holders receive separate principal and
Mortgage-backed securities (MBS) on which registered holders receive an aggregate principal and
Abrams’ model for calculating DLOM based on the interaction of discounts from four economic components.
the rate of return on investment that would be required by a prudent investor to invest in an asset with a specific level risk. Also, a rate of return used to convert a monetary sum, payable or receivable in the future, into present value.
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.
Schedule of depreciation rates allowed for tax purposes.
Any depreciation method that produces larger deductions for depreciation in the
The accumulated coupon interest earned but not yet paid to the seller of a bond by the
A strategy that uses available information and forecasting techniques to seek a
Publicly traded issues that may be collateralized by mortgages and MBSs.
Money after-tax rate of return minus the inflation rate.
mortgage pass-through securities whose Principal and interest payments are
The decision-maker in a Principal-agent relationship.
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.
Total costs, explicit and implicit.
An arrangement whereby a security issue is canceled if the underwriter is unable
Alternative mortgage instruments
Variations of mortgage instruments such as adjustable-rate and variablerate
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 yield (APY)
The effective, or true, annual rate of return. The APY is the rate actually
Arithmetic average (mean) rate of return
Arithmetic mean return.
Asset allocation decision
The decision regarding how an institution's funds should be distributed among the
A security that is collateralized by loans, leases, receivables, or installment contracts
An option is at-the-money if the strike price of the option is equal to the market price of the
Auction rate preferred stock (ARPS)
Floating rate preferred stock, the dividend on which is adjusted every
Average collection period, or days' receivables
The ratio of accounts receivables to sales, or the total
The average time to maturity of securities held by a mutual fund. Changes in interest rates
Average (across-day) measures
An 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 rate
Taxes as a fraction of income; total taxes divided by total taxable income.
Balance of payments
A statistical compilation formulated by a sovereign nation of all economic transactions
Any large Principal payment due at maturity for a bond or loan with or without a a sinking
A strategy in which the maturities of the securities included in the portfolio are concentrated
Base interest rate
Related: Benchmark interest rate.
Basic business strategies
Key strategies a firm intends to pursue in carrying out its business plan.
In the bond market, the smallest measure used for quoting yields is a basis point. each percentage
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
A conventional unit of measure for bond prices set at $10 and equivalent to 1% of the $100 face
The Treasury and federal agencies are moving to a book-entry system in which securities are not represented by engraved pieces of paper but are maintained in computerized records at the
In the mortgage pipeline, the risk that prospective borrowers of loans committed to be
Break-even lease payment
The lease payment at which a party to a prospective lease is indifferent between
Break-even payment rate
The prepayment rate of a MBS coupon that will produce the same CFY as that of
Break-even tax rate
The tax rate at which a party to a prospective transaction is indifferent between entering
Broker loan rate
Related: Call money rate.
A strategy in which a portfolio is constructed so that the maturities of its securities are highly
A passive investment strategy with no active buying and selling of stocks from the
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.
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.
Cash-flow break-even point
The point below which the firm will need either to obtain additional financing
A public equity issue that is sold to all interested investors.
An amount that would be accepted in lieu of a chance at a possible higher, but
Certificate of deposit (CD)
Also called a time deposit, this is a certificate issued by a bank or thrift that
Communication barrier between financiers (investment bankers) and traders. This barrier is
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
mortgage against which no additional debt may be issued.
Coefficient of determination
A measure of the goodness of fit of the relationship between the dependent and
Collateralized mortgage obligation (CMO)
A security backed by a pool of pass-throughs , structured so that
A strategy in which a put and with the same strike price and expiration are either both
The representing of accounting information over Multiple years as percentages
An offering of securities through competitive bidding.
interest paid on previously earned interest as well as on the Principal.
Conflict between bondholders and stockholders
These two groups may have interests in a corporation that
A firm engaged in two or more unrelated businesses.
A merger involving two or more firms that are in unrelated businesses.
The month in which futures contracts may be satisfied by making or accepting a delivery.
A loan based on the credit of the borrower and on the collateral for the mortgage.
Also called private-label pass-throughs, any mortgage pass-through security not
The acquisition of one firm by anther firm.
Debt obligations issued by corporations.
A legal document creating a corporation.
one of the three areas of the discipline of finance. It deals with the operation of the firm
Corporate financial management
The application of financial Principals within a corporation to create and
Corporate financial planning
Financial planning conducted by a firm that encompasses preparation of both
Corporate processing float
The time that elapses between receipt of payment from a customer and the
Corporate tax view
The argument that double (corporate and individual) taxation of equity returns makes
Corporate taxable equivalent
rate of return required on a par bond to produce the same after-tax yield to
A bond's interest payments.
In bonds, notes or other fixed income securities, the stated percentage rate of interest, usually
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
Covered interest arbitrage
A portfolio manager invests dollars in an instrument denominated in a foreign
Covered or hedge option strategies
Strategies that involve a position in an option as well as a position in the
The interest rate offered on an investment type insurance policy.
The exchange rate between two currencies expressed as the ratio of two foreign exchange rates
The return at which two alternative projects have the same net present value.
Current time to maturity on an outstanding debt instrument.
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