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Interest on interest |
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Definition of Interest on interestInterest on interestinterest earned on reinvestment of each interest payment on money invested.
Related Terms:fractional interest discountthe 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. Accrued interestThe accumulated coupon interest earned but not yet paid to the seller of a bond by the Amortizing interest rate swapSwap in which the principal or national amount rises (falls) as interest rates At-the-moneyAn option is at-the-money if the strike price of the option is equal to the market price of the Balance of paymentsA statistical compilation formulated by a sovereign nation of all economic transactions Base interest rateRelated: Benchmark interest rate. Benchmark interest rateAlso called the base interest rate, it is the minimum interest rate investors will Best-interests-of-creditors testThe requirement that a claim holder voting against a plan of reorganization Break-even lease paymentThe lease payment at which a party to a prospective lease is indifferent between Break-even payment rateThe prepayment rate of a MBS coupon that will produce the same CFY as that of Call money rateAlso called the broker loan rate , the interest rate that banks charge brokers to finance Capitalized interestinterest that is not immediately expensed, but rather is considered as an asset and is then Cash flow after interest and taxesNet income plus depreciation. 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 Compound interestinterest paid on previously earned interest as well as on the principal. Compound optionOption on an option. CompoundingThe process of accumulating the time value of money forward in time. For example, interest Compounding frequencyThe number of compounding periods in a year. For example, quarterly Compounding periodThe length of the time period (for example, a quarter in the case of quarterly Continuous compoundingThe process of accumulating the time value of money forward in time on a Coupon paymentsA bond's interest payments. Covered interest arbitrageA portfolio manager invests dollars in an instrument denominated in a foreign Date of paymentDate dividend checks are mailed. Delivery versus paymentA transaction in which the buyer's payment for securities is due at the time of Discrete compoundingcompounding the time value of money for discrete time intervals. Dividend reinvestment plan (DRP)Automatic reinvestment of shareholder dividends in more shares of a Earnings before interest and taxes (EBIT)A financial measure defined as revenues less cost of goods sold Effective annual interest rateAn annual measure of the time value of money that fully reflects the effects of Equilibrium rate of interestThe interest rate that clears the market. Also called the market-clearing interest FHA prepayment experienceThe percentage of loans in a pool of mortgages outstanding at the origination Forward interest rateinterest rate fixed today on a loan to be made at some future date. Graduated-payment mortgages (GPMs)A type of stepped-payment loan in which the borrower's payments Gross interestinterest earned before taxes are deducted. Hot moneymoney that moves across country borders in response to interest rate differences and that moves InterestThe price paid for borrowing money. It is expressed as a percentage rate over a period of time and Interest coverage ratioThe ratio of the earnings before interest and taxes to the annual interest expense. This Interest coverage testA debt limitation that prohibits the issuance of additional long-term debt if the issuer's Interest equalization taxTax on foreign investment by residents of the U.S. which was abolished in 1974. Interest paymentsContractual debt payments based on the coupon rate of interest and the principal amount. Interest-only strip (IO)A security based solely on the interest payments form a pool of mortgages, Treasury Interest rate agreementAn agreement whereby one party, for an upfront premium, agrees to compensate the Interest rate capAlso called an interest rate ceiling, an interest rate agreement in which payments are made Interest rate ceilingRelated: interest rate cap. Interest rate floorAn interest rate agreement in which payments are made when the reference rate falls Interest rate on debtThe firm's cost of debt capital. Interest rate parity theoreminterest rate differential between two countries is equal to the difference Interest rate riskThe risk that a security's value changes due to a change in interest rates. For example, a Interest rate swapA binding agreement between counterparties to exchange periodic interest payments on Interest subsidyA firm's deduction of the interest payments on its debt from its earnings before it calculates Interest tax shieldThe reduction in income taxes that results from the tax-deductibility of interest payments. In-the-moneyA put option that has a strike price higher than the underlying futures price, or a call option Lag response of prepaymentsThere is typically a lag of about three months between the time the weighted Money baseComposed of currency and coins outside the banking system plus liabilities to the deposit money banks. Money center banksBanks that raise most of their funds from the domestic and international money markets, relying less on depositors for funds. Money managementRelated: Investment management. Money managerRelated: Investment manager. Money marketmoney markets are for borrowing and lending money for three years or less. The securities in Money market demand accountAn account that pays interest based on short-term interest rates. Money market fundA mutual fund that invests only in short term securities, such as bankers' acceptances, Money market hedgeThe use of borrowing and lending transactions in foreign currencies to lock in the Money market notesPublicly traded issues that may be collateralized by mortgages and MBSs. Money purchase planA defined benefit contribution plan in which the participant contributes some part and Money rate of returnAnnual money return as a percentage of asset value. Money supplyM1-A: Currency plus demand deposits New moneyIn a Treasury auction, the amount by which the par value of the securities offered exceeds that of Nominal interest rateThe interest rate unadjusted for inflation. Open interestThe total number of derivative contracts traded that not yet been liquidated either by an Out-of-the-money optionA call option is out-of-the-money if the strike price is greater than the market price Payment dateThe date on which each shareholder of record will be sent a check for the declared dividend. Payment floatCompany-written checks that have not yet cleared. Payments nettingReducing fund transfers between affiliates to only a netted amount. Netting can be done on Payments patternescribes the lagged collection pattern of receivables, for instance the probability that a Payment-In-Kind (PIK)bond A bond that gives the issuer an option (during an initial period) either to make Pooling of interestsAn accounting method for reporting acquisitions accomplished through the use of equity. Precautionary demand (for money)The need to meet unexpected or extraordinary contingencies with a Prepayment speedAlso called speed, the estimated rate at which mortgagors pay off their loans ahead of Prepaymentspayments made in excess of scheduled mortgage principal repayments. Production payment financingA method of nonrecourse asset-based financing in which a specified Rate of interestThe rate, as a proportion of the principal, at which interest is computed. Real interest rateThe rate of interest excluding the effect of inflation; that is, the rate that is earned in terms Realized compound yieldYield assuming that coupon payments are invested at the going market interest Reinvestment rateThe rate at which an investor assumes interest payments made on a debt security can be Reinvestment riskThe risk that proceeds received in the future will have to be reinvested at a lower potential Short interestThis is the total number of shares of a security that investors have borrowed, then sold in the Simple compound growth methodA method of calculating the growth rate by relating the terminal value to Simple interestinterest calculated only on the initial investment. Related:compound interest. Single-payment bondA bond that will make only one payment of principal and interest. Speculative demand (for money)The need for cash to take advantage of investment opportunities that may arise. Spot interest rateinterest rate fixed today on a loan that is made today. Related: forward interest rates. Stated annual interest rateThe interest rate expressed as a per annum percentage, by which interest Time value of moneyThe idea that a dollar today is worth more than a dollar in the future, because the dollar Times-interest-earned ratioEarnings before interest and tax, divided by interest payments. Transaction demand (for money)The need to accommodate a firm's expected cash transactions. True interest costFor a security such as commercial paper that is sold on a discount basis, the coupon rate Zero prepaymentassumption The assumption of payment of scheduled principal and interest with no payments. 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. InterestThe cost of money, received on investments or paid on borrowings.
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