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Definition of Interest Factor
Numbers found in compound interest and annuity tables. Usually called the FVIF or PVIF.
The amount to which a payment or series of payments will grow by a given future date when compounded by a given interest rate. FVIF future value interest factor.
the present value of a finite stream of cash flows for every beginning $1 of cash flow.
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
The pool factor implied by the scheduled amortization assuming no prepayemts.
Swap in which the principal or national amount rises (falls) as interest rates
Present value of $1 paid for each of t periods.
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
interest that is not immediately expensed, but rather is considered as an asset and is then
Net income plus depreciation.
interest paid on previously earned interest as well as on the principal.
Rules set by the Chicago Board of Trade for determining the invoice price of each
Covered interest arbitrage
A portfolio manager invests dollars in an instrument denominated in a foreign
Present value of $1 received at a stated future date.
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
A financial institution that buys a firm's accounts receivables and collects the debt.
A statistical procedure that seeks to explain a certain phenomenon, such as the return on a
A way of decomposing the factors that influence a security's rate of return into common and
A well-diversified portfolio constructed to have a beta of 1.0 on one factor and a beta of
Sale of a firm's accounts receivable to a financial institution known as a factor.
Forward interest rate
interest rate fixed today on a loan to be made at some future date.
interest earned before taxes are deducted.
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.
factoring arrangement that provides collection and insurance of accounts receivable.
A version of the capital asset pricing model derived by Merton that includes extramarket
Net benefit to leverage factor
A linear approximation of a factor, T*, that enables one to operationalize the
Nominal interest rate
The interest rate unadjusted for inflation.
factoring arrangement that provides collection, insurance, and finance for accounts receivable.
A special case of the arbitrage pricing theory that is derived from the one-factor model by
The total number of derivative contracts traded that not yet been liquidated either by an
The outstanding principal balance divided by the original principal balance with the result
Pooling of interests
An accounting method for reporting acquisitions accomplished through the use of equity.
Present value factor
factor used to calculate an estimate of the present value of an amount to be received in
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
The pool factor as reported by the bond buyer for a given amortization period.
This is the total number of shares of a security that investors have borrowed, then sold in the
Single factor model
A model of security returns that acknowledges only one common factor.
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
Earnings before interest and tax, divided by interest payments.
True interest cost
For a security such as commercial paper that is sold on a discount basis, the coupon rate
Black's zero-beta version of the capital asset pricing model.
Earnings before interest and taxes (EBIT)
The operating profit before deducting interest and tax.
Earnings before interest, taxes, depreciation and amortization (EBITDA)
The operating profit before deducting interest, tax, depreciation and amortization.
The cost of money, received on investments or paid on borrowings.
The production resource that, as a result of scarce resources, limits the production of goods
Profit before interest and taxes (PBIT)
Income that a company receives in the form of interest, usually as the result of keeping money in interest-bearing accounts at financial institutions and the lending of money to other companies.
The amount of interest that is owed but has not been paid at the end of a period.
earnings before interest and income tax (EBIT)
A measure of profit that
times interest earned
A ratio that tests the ability of a business to make
The amount of interest accumulated on a debt security between
interest paid on principal and on interest earned in previous
Effective Interest Rate
The rate of interest actually earned on an investment. It is
Nominal Interest Rate
The rate of interest quoted, or stated, to be paid on a security
Real Interest Rate
The rate of interest paid on an investment adjusted for inflation
interest paid only on the principal; calculated by multiplying the
Times Interest Earned Ratio
A measure of how well a company is able to meet its interest
a method of determining interest in which interest that was earned in prior periods is added to the original investment so that, in each successive period, interest is earned on both principal and interest
critical success factors (CSF)
any item (such as quality, customer
a method of determining interest in which interest is earned only on the original investment (or principal) amount
The sale of accounts receivable to a third party, with the third party bearing
All the costs incurred during the manufacturing process, minus the
The cost of funds loaned to an entity. It can also refer to the equity ownership
Pooling of interests
An method for accounting for a business combination. When used, the expenses of the combination are charged against income at once, and the net
Present value of an annuity of $1 per period.
interest earned on interest.
Present value of a $1 future payment.
effective annual interest rate
interest rate that is annualized using compound interest.
interest rate parity
Theory that forward premium equals interest rate differential.
interest tax shield
Tax savings resulting from deductibility of interest payments.
nominal interest rate
Rate at which money invested grows.
real interest rate
Rate at which the purchasing power of an investment increases.
interest earned only on the original investment; no interest is earned on interest.
Factor of Production
A resource used to produce a good or service. The main macroeconomic factors of production are capital and labor.
Interest Rate Differential
The interest rate on our financial assets minus the interest rate on a foreign country's financial assets.
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