|Interest-only strip (IO)|
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Definition of Interest-only strip (IO)
Interest-only strip (IO)
A security based solely on the interest payments form a pool of mortgages, Treasury
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 option of terminating an investment earlier than originally planned.
Rule in bankruptcy proceedings whereby senior creditors are required to be paid in full
Any depreciation method that produces larger deductions for depreciation in the
In portfolio accounting, a straight-line accumulation of capital gains on discount
The accumulated coupon interest earned but not yet paid to the seller of a bond by the
An approximate measure of the liability of a plan in the event of a
Also called the quick ratio, the ratio of current assets minus inventories, accruals, and prepaid
A merger or consolidation in which an acquirer purchases the selling firm's assets.
A merger or consolidation in which an acquirer purchases the acquiree's stock.
A strategy that uses available information and forecasting techniques to seek a
A protection against borrower fallout risk in the mortgage pipeline.
A situation in which market participation is a negative signal.
Process in corporate financial planning whereby the smaller investment proposals of each of the
The alpha of a fund is determined as follows:
An option that may be exercised at any time up to and including the expiration date.
An option contract that can be exercised at any time between the date of purchase and
The repayment of a loan by installments.
The pool factor implied by the scheduled amortization assuming no prepayemts.
Amortizing interest rate swap
Swap in which the principal or national amount rises (falls) as interest rates
Annualized holding period return
The annual rate of return that when compounded t times, would have
Arrangements whereby customers who pay before the final date may be entitled to deduct a
The signal-to-noise ratio of an analyst's forecasts. The ratio of alpha to residual standard
Formal request for funds for capital investment project.
Arbitrage-free option-pricing models
Yield curve option-pricing models.
Articles of incorporation
Legal document establishing a corporation and its structure and purpose.
Option based on the average price of the asset during the life of the option.
The ratio of total assets to stockholder equity.
Asset activity ratios
Ratios that measure how effectively the firm is managing its assets.
Asset allocation decision
The decision regarding how an institution's funds should be distributed among the
A firm's investing in assets that are riskier than those that the debtholders expected.
Asset substitution problem
Arises when the stockholders substitute riskier assets for the firm's existing
Information that is known to some people but not to other people.
Markets in which the prevailing price is determined through the free interaction of
Auction rate preferred stock (ARPS)
Floating rate preferred stock, the dividend on which is adjusted every
The correlation of a variable with itself over successive time intervals.
Average collection period, or days' receivables
The ratio of accounts receivables to sales, or the total
A market condition in which futures prices are lower in the distant delivery months than in
BAN (Bank anticipation notes)
Notes issued by states and municipalities to obtain interim financing for
Bank collection float
The time that elapses between when a check is deposited into a bank account and when the funds are available to the depositor, during which period the bank is collecting payment from the payer's bank.
Bank for International Settlements (BIS)
An international bank headquartered in Basel, Switzerland, which
Gives the lessee the option to purchase the asset at a price below fair market
Contracts with trigger points that, when crossed, automatically generate buying or selling of
Base interest rate
Related: Benchmark interest rate.
Packages that involve the exchange of more than two currencies against a base currency at
A devaluation that is designed to cheapen a nation's currency and thereby
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
Beta equation (Mutual Funds)
The beta of a fund is determined as follows:
Beta equation (Stocks)
The beta of a stock is determined as follows:
Biased expectations theories
Related: pure expectations theory.
Binomial option pricing model
An option pricing model in which the underlying asset can take on only two
Black-Scholes option-pricing model
A model for pricing call options based on arbitrage arguments that uses
Call an option
To exercise a call option.
An option contract that gives its holder the right (but not the obligation) to purchase a specified
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
A swaption in which the buyer has the right to enter into a swap as a fixed-rate payer. The
decision Allocation of invested funds between risk-free assets versus the risky portfolio.
Capital market imperfections view
The view that issuing debt is generally valuable but that the firm's
Placing one or more limits on the amount of new investment undertaken by a firm, either
The debt and/or equity mix that fund a firm's assets.
A method of constructing a replicating portfolio in which the manager purchases a
Also called financial leverage ratios, these ratios compare debt to total capitalization
A table showing the capitalization of a firm, which typically includes the amount of
interest that is not immediately expensed, but rather is considered as an asset and is then
Cash conversion cycle
The length of time between a firm's purchase of inventory and the receipt of cash
Cash flow after interest and taxes
Net income plus depreciation.
Cash flow coverage ratio
The number of times that financial obligations (for interest, principal payments,
Cash flow from operations
A firm's net cash inflow resulting directly from its regular operations
The proportion of a firm's assets held as cash.
A transaction where exchange is immediate, as contrasted to a forward contract, which
Changes in Financial Position
Sources of funds internally provided from operations that alter a company's
A reduction in the likelihood one or more of the firm's claimants will be fully repaid,
An auditor's opinion reflecting an unqualified acceptance of a company's financial statements.
Clear a position
To eliminate a long or short position, leaving no ownership or obligation.
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
The negative float that is created between the time when you deposit a check in your account
The percentage of a given month's sales collected during the month of sale and each
Procedures followed by a firm in attempting to collect accounts receivables.
Also called horizon matching, a variation of multiperiod immunization and cash
A strategy in which a put and with the same strike price and expiration are either both
The fee paid to a broker to execute a trade, based on number of shares, bonds, options, and/or
A broker on the floor of an exchange acts as agent for a particular brokerage house and
A firm which buys and sells future contracts for customer accounts. Related: futures
Committee, AIMR Performance Presentation Standards Implementation Committee
The Association for Investment Management and Research (AIMR)'s Performance Presentation Standards Implementation
Common stock ratios
Ratios that are designed to measure the relative claims of stockholders to earnings
Intra- or intermarket rivalry between businesses trying to obtain a larger piece of the same
The entire portfolio, including risky and risk-free assets.
Insurance that a construction contract will be successfully completed.
The risk that a project will not be brought into operation successfully.
An undertaking either (1) to complete a project such that it meets certain specified
Voluntary arrangement to restructure a firm's debt, under which payment is reduced.
interest paid on previously earned interest as well as on the principal.
Option on an option.
The length of the time period (for example, a quarter in the case of quarterly
Comprehensive due diligence investigation
The investigation of a firm's business in conjunction with a
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