Definition of Interest payments

Interest payments

Contractual debt payments based on the coupon rate of interest and the principal amount.

Agency pass-throughs

Mortgage pass-through securities whose principal and interest payments are
guaranteed by government agencies, such as the Government National Mortgage Association ("Ginnie Mae"), Federal Home Loan Mortgage Corporation ("Freddie Mac") and Federal National Mortgage Association ("Fannie Mae").

Bearer bond

Bonds that are not registered on the books of the issuer. Such bonds are held in physical form by
the owner, who receives interest payments by physically detaching coupons from the bond certificate and
delivering them to the paying agent.

Bond

A financial asset taking the form of a promise by a borrower to repay a specified amount (the bond's face value) on a maturity date and to make fixed periodic interest payments.

Bond

Usually a fixed interest security under which the issuer contracts to pay the lender a fixed principal amount at a stated date in the future, and a series of interest payments, either semi-annually or annually. interest payments may vary through the life of bond.

bond

A debt security issued by a government or company. You receive regular interest payments at specified rates while you hold the bond and you receive the face value when it matures. Short-term bonds mature in less than five years; medium-term bonds mature in six to ten years; and long-term bonds mature in eleven years or greater.

coupon

The interest payments paid to the bondholder.

Coupon payments

A bond's interest payments.

Debt relief

Reducing the principal and/or interest payments on LDC loans.

Default risk

Also referred to as credit risk (as gauged by commercial rating companies), the risk that an
issuer of a bond may be unable to make timely principal and interest payments.

Duration

The expected life of a fixed-income security considering its coupon
yield, interest payments, maturity, and call features. As market interest rates
rise, the duration of a financial instrument decreases. See Macaulay duration.

Earnings yield

The ratio of earnings per share after allowing for tax and interest payments on fixed interest
debt, to the current share price. The inverse of the price/earnings ratio. It's the Total Twelve Months earnings
divided by number of outstanding shares, divided by the recent price, multiplied by 100. The end result is
shown in percentage.

GNMA-I

Mortgage-backed securities (MBS) on which registered holders receive separate principal and
interest payments on each of their certificates, usually directly from the servicer of the MBS pool. GNMA-I
mortgage-backed securities are single-issuer pools.

GNMA-II

Mortgage-backed securities (MBS) on which registered holders receive an aggregate principal and
interest payment from a central paying agent on all of their certificates. Principal and interest payments are
disbursed on the 20th day of the month. GNMA-II MBS are backed by multiple-issuer pools or custom pools
(one issuer but different interest rates that may vary within one percentage point). Multiple-issuer pools are
known as "Jumbos." Jumbo pools are generally longer and offer certain mortgages that are more
geographically diverse than single-issuer pools. Jumbo pool mortgage interest rates may vary within one
percentage point.

Interest-only strip (IO)

A security based solely on the interest payments form a pool of mortgages, Treasury
bonds, or other bonds. Once the principal on the mortgages or bonds has been repaid, interest payments stop
and the value of the IO falls to zero.

Interest rate swap

A binding agreement between counterparties to exchange periodic interest payments on
some predetermined dollar principal, which is called the notional principal amount. For example, one party
will pay fixed and receive variable.

Interest subsidy

A firm's deduction of the interest payments on its debt from its earnings before it calculates
its tax bill under current tax law.

Interest tax shield

The reduction in income taxes that results from the tax-deductibility of interest payments.

interest tax shield

Tax savings resulting from deductibility of interest payments.

Issue date

The date a security is first offered for sale. That date usually
determines when interest payments, known as coupons, are made.

Level pay

The characteristic of the scheduled principal and interest payments due under a mortgage such that
total monthly payment of P&I is the same while characteristically the principal payment component of the
monthly payment becomes gradually greater while the monthly interest payment becomes less.

MBS servicing

The requirement that the mortgage servicer maintain payment of the full amount of
contractually due principal and interest payments whether or not actually collected.

Modified pass-throughs

Agency pass-throughs that guarantee (1) timely interest payments and (2) principal
payments as collected, but no later than a specified time after they are due. Related: fully modified passthroughs

Notional principal amount

In an interest rate swap, the predetermined dollar principal on which the
exchanged interest payments are based.

Other long term liabilities

Value of leases, future employee benefits, deferred taxes and other obligations
not requiring interest payments that must be paid over a period of more than 1 year.

Pass-through securities

A pool of fixed-income securities backed by a package of assets (i.e. mortgages)
where the holder receives the principal and interest payments. Related: mortgage pass-through security

Registered bond

A bond whose issuer records ownership and interest payments. Differs from a bearer bond
which is traded without record of ownership and whose possession is the only evidence of ownership.

Reinvestment rate

The rate at which an investor assumes interest payments made on a debt security can be
reinvested over the life of that security.

Scheduled cash flows

The mortgage principal and interest payments due to be paid under the terms of the
mortgage not including possible prepayments.

times interest earned

A ratio that tests the ability of a business to make
interest payments on its debt, which is calculated by dividing annual
earnings before interest and income tax by the interest expense for the
year. There is no particular rule for this ratio, such as 3 or 4 times, but
obviously the ratio should be higher than 1.

Times-interest-earned ratio

Earnings before interest and tax, divided by interest payments.

weighted-average cost of capital (WACC)

Expected rate of return on a portfolio of all the firm’s securities, adjusted for tax savings due to interest payments.

Zero-coupon Bond

A security that makes no interest payments; it is sold at a discount
at issue and then repaid at face value at maturity

Accrued interest

The accumulated coupon interest earned but not yet paid to the seller of a bond by the
buyer (unless the bond is in default).

Accrued Interest

The amount of interest accumulated on a debt security between
interest paying dates

Accrued Interest

The amount of interest owing but not paid.

Amortizing interest rate swap

Swap in which the principal or national amount rises (falls) as interest rates
rise (decline).

Balance of payments

A statistical compilation formulated by a sovereign nation of all economic transactions
between residents of that nation and residents of all other nations during a stipulated period of time, usually a
calendar year.

Balance of Payments

The difference between the demand for and supply of a country's currency on the foreign exchange market.

Balance of Payments Accounts

A statement of a country's transactions with other countries.

Base interest rate

Related: Benchmark interest rate.

Benchmark interest rate

Also called the base interest rate, it is the minimum interest rate investors will
demand for investing in a non-Treasury security. It is also tied to the yield to maturity offered on a
comparable-maturity Treasury security that was most recently issued ("on-the-run").

Best-interests-of-creditors test

The requirement that a claim holder voting against a plan of reorganization
must receive at least as much as he would have if the debtor were liquidated.

Capitalized interest

interest that is not immediately expensed, but rather is considered as an asset and is then
amortized through the income statement over time.

Capitalized Interest

interest incurred during the construction period on monies invested in
assets under construction that is added to the cost of the assets.

Cash flow after interest and taxes

Net income plus depreciation.

Clearing House Automated Payments System (CHAPS)

A computerized clearing system for sterling funds
that began operations in 1984. It includes 14 member banks, nearly 450 participating banks, and is one of the
clearing companies within the structure of the Association for Payment Clearing Services (APACS).

Clearing House Interbank Payments System (CHIPS)

An international wire transfer system for high-value
payments operated by a group of major banks.

Compound interest

interest paid on previously earned interest as well as on the principal.

Compound Interest

interest paid on principal and on interest earned in previous
periods

compound 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

compound interest

interest earned on interest.

Compound Interest

interest earned on an investment at periodic intervals and added to principal and previous interest earned. Each time new interest earned is calculated it is on a combined total of principal and previous interest earned. Essentially, interest is paid on top of interest.

Covered interest arbitrage

A portfolio manager invests dollars in an instrument denominated in a foreign
currency and hedges his resulting foreign exchange risk by selling the proceeds of the investment forward for
dollars.

Daily Interest Accumulation

Account in which interest is accrued daily and credited to the account at the end of a specified time.

earnings before interest and income tax (EBIT)

A measure of profit that
equals sales revenue for the period minus cost-of-goods-sold expense
and all operating expenses—but before deducting interest and income
tax expenses. It is a measure of the operating profit of a business before
considering the cost of its debt capital and income tax.

Earnings before interest and taxes (EBIT)

A financial measure defined as revenues less cost of goods sold
and selling, general, and administrative expenses. In other words, operating and non-operating profit before
the deduction of interest and income taxes.

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.

Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)

An earningsbased measure that, for many, serves as a surrogate for cash flow. Actually consists of working
capital provided by operations before interest and taxes.

Effective annual interest rate

An annual measure of the time value of money that fully reflects the effects of
compounding.

effective annual interest rate

interest rate that is annualized using compound interest.

Effective Interest Rate

The rate of interest actually earned on an investment. It is
calculated as the ratio of the total amount of interest actually
earned for one year divided by the amount of the principal.

Equilibrium rate of interest

The interest rate that clears the market. Also called the market-clearing interest
rate.

Fixed Interest Rate

A rate that does not fluctuate with general market conditions.

Floating Interest Rate

A rate that fluctuates with general market condition.

Forward interest rate

interest rate fixed today on a loan to be made at some future date.

fractional interest discount

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.

Gross interest

interest earned before taxes are deducted.

Guaranteed Interest Annuity (GIA)

interest bearing investment with fixed rate and term.

Guaranteed Interest Certificate (GIC)

interest bearing investment with fixed rate and term.

Insurable Interest

In England in the 1700's it was popular to bet on the date of death of certain prominent public figures. Anyone could buy life insurance on another's life, even without their consent. Unfortunately, some died before it was their time, dispatched prematurely in order that the life insurance proceeds could be collected. In 1774, English Parliament passed a law which restricted the right to be a beneficiary on a life insurance contract to those who would suffer an economic loss when the life insured died. The law also provided that a person has an unlimited insurable interest in his own life. It is still a legal stipulation that an insurance contract is not valid unless insurable interest exists at the time the policy is issued. Life Insurance companies will not, however, issue unlimited amounts of coverage to an individual. The amount of life insurance which will be approved has to approximate the loss caused by the death of the individual and must not result in a windfall for the beneficiary.

Interest

The price paid for borrowing money. It is expressed as a percentage rate over a period of time and
reflects the rate of exchange of present consumption for future consumption. Also, a share or title in property.

Interest

The cost of money, received on investments or paid on borrowings.

Interest

The cost of funds loaned to an entity. It can also refer to the equity ownership
of an investor in a business entity.

Interest

A charge for the use of money supplied by a lender.

interest

The cost of a loan or the compensation paid for the use of money. For example, you are paid interest for deposits you make into a savings account, and you pay interest for money that you borrow from a low-cost borrowing account.

Interest coverage ratio

The ratio of the earnings before interest and taxes to the annual interest expense. This
ratio measures a firm's ability to pay interest.

Interest coverage test

A debt limitation that prohibits the issuance of additional long-term debt if the issuer's
interest coverage would, as a result of the issue, fall below some specified minimum.

Interest equalization tax

Tax on foreign investment by residents of the U.S. which was abolished in 1974.

Interest Factor

Numbers found in compound interest and annuity tables. Usually called the FVIF or PVIF.

Interest income

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.

Interest on interest

interest earned on reinvestment of each interest payment on money invested.
See: compound interest.

Interest Option

One of several investment accounts in which your premiums may be invested within your life insurance policy.

Interest payable

The amount of interest that is owed but has not been paid at the end of a period.

Interest Rate

Cost of using money, expressed as a rate per period of time, usually one year.

Interest Rate

Rate charged or paid for the use of money, normally expressed as a percentage

Interest rate agreement

An agreement whereby one party, for an upfront premium, agrees to compensate the
other at specific time periods if a designated interest rate (the reference rate) is different from a predetermined
level (the strike rate).

Interest rate cap

Also called an interest rate ceiling, an interest rate agreement in which payments are made
when the reference rate exceeds the strike rate.

Interest rate ceiling

Related: interest rate cap.

Interest Rate Differential

The interest rate on our financial assets minus the interest rate on a foreign country's financial assets.

Interest rate floor

An interest rate agreement in which payments are made when the reference rate falls
below the strike rate.

Interest Rate, Nominal

Payment for the use of borrowed funds, measured as a percentage per year of these funds.

Interest rate on debt

The firm's cost of debt capital.

interest rate parity

Theory that forward premium equals interest rate differential.

Interest Rate Parity

Theory that real interest rates are approximately the same across countries except for a risk premium.

Interest rate parity theorem

interest rate differential between two countries is equal to the difference
between the forward foreign exchange rate and the spot rate.

Interest Rate, Real

Nominal interest rate less expected inflation.

Interest rate risk

The risk that a security's value changes due to a change in interest rates. For example, a
bond's price drops as interest rates rise. For a depository institution, also called funding risk, the risk that
spread income will suffer because of a change in interest rates.

Interest Rate Risk

Possibility that interest rates will rise during the term of a loan thereby increasing the annual cost of borrowing.

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