|Interest on interest|
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Definition of Interest on interest
Interest on interest
interest earned on reinvestment of each interest payment on money invested.
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.
The accumulated coupon interest earned but not yet paid to the seller of a bond by the
Swap in which the principal or national amount rises (falls) as interest rates
An option is at-the-money if the strike price of the option is equal to the market price of the
A statistical compilation formulated by a sovereign nation of all economic transactions
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
The lease payment at which a party to a prospective lease is indifferent between
The prepayment rate of a MBS coupon that will produce the same CFY as that of
Also called the broker loan rate , the interest rate that banks charge brokers to finance
interest that is not immediately expensed, but rather is considered as an asset and is then
Net income plus depreciation.
A computerized clearing system for sterling funds
An international wire transfer system for high-value
interest paid on previously earned interest as well as on the principal.
Option on an option.
The process of accumulating the time value of money forward in time. For example, interest
The number of compounding periods in a year. For example, quarterly
The length of the time period (for example, a quarter in the case of quarterly
The process of accumulating the time value of money forward in time on a
A bond's interest payments.
Covered interest arbitrage
A portfolio manager invests dollars in an instrument denominated in a foreign
Date of payment
Date dividend checks are mailed.
Delivery versus payment
A transaction in which the buyer's payment for securities is due at the time of
compounding 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 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
FHA prepayment experience
The percentage of loans in a pool of mortgages outstanding at the origination
Forward interest rate
interest 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
interest earned before taxes are deducted.
money that moves across country borders in response to interest rate differences and that moves
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-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.
A put option that has a strike price higher than the underlying futures price, or a call option
Lag response of prepayments
There is typically a lag of about three months between the time the weighted
Composed of currency and coins outside the banking system plus liabilities to the deposit money banks.
Money center banks
Banks that raise most of their funds from the domestic and international money markets, relying less on depositors for funds.
Related: Investment management.
Related: Investment manager.
money markets are for borrowing and lending money for three years or less. The securities in
Money market demand account
An account that pays interest based on short-term interest rates.
Money market fund
A mutual fund that invests only in short term securities, such as bankers' acceptances,
Money market hedge
The use of borrowing and lending transactions in foreign currencies to lock in the
Money market notes
Publicly traded issues that may be collateralized by mortgages and MBSs.
Money purchase plan
A defined benefit contribution plan in which the participant contributes some part and
Money rate of return
Annual money return as a percentage of asset value.
M1-A: Currency plus demand deposits
In a Treasury auction, the amount by which the par value of the securities offered exceeds that of
Nominal interest rate
The interest rate unadjusted for inflation.
The total number of derivative contracts traded that not yet been liquidated either by an
A call option is out-of-the-money if the strike price is greater than the market price
The date on which each shareholder of record will be sent a check for the declared dividend.
Company-written checks that have not yet cleared.
Reducing fund transfers between affiliates to only a netted amount. Netting can be done on
escribes the lagged collection pattern of receivables, for instance the probability that a
bond A bond that gives the issuer an option (during an initial period) either to make
Pooling of interests
An 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
Also called speed, the estimated rate at which mortgagors pay off their loans ahead of
payments made in excess of scheduled mortgage principal repayments.
Production payment financing
A method of nonrecourse asset-based financing in which a specified
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
Realized compound yield
Yield assuming that coupon payments are invested at the going market interest
The rate at which an investor assumes interest payments made on a debt security can be
The risk that proceeds received in the future will have to be reinvested at a lower potential
This is the total number of shares of a security that investors have borrowed, then sold in the
Simple compound growth method
A method of calculating the growth rate by relating the terminal value to
interest calculated only on the initial investment. Related:compound interest.
A 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 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
Time value of money
The idea that a dollar today is worth more than a dollar in the future, because the dollar
Earnings before interest and tax, divided by interest payments.
Transaction demand (for money)
The need to accommodate a firm's expected cash transactions.
True interest cost
For a security such as commercial paper that is sold on a discount basis, the coupon rate
assumption 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.
The cost of money, received on investments or paid on borrowings.
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