|Interest rate cap|
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Definition of Interest rate cap
Interest rate cap
Also called an interest rate ceiling, an interest rate agreement in which payments are made
Related: interest rate cap.
the rate of return on investment that would be required by a prudent investor to invest in an asset with a specific level risk. Also, a rate of return used to convert a monetary sum, payable or receivable in the future, into present value.
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.
Schedule of depreciation rates allowed for tax purposes.
Any depreciation method that produces larger deductions for depreciation in the
The accumulated coupon interest earned but not yet paid to the seller of a bond by the
A strategy that uses available information and forecasting techniques to seek a
Publicly traded issues that may be collateralized by mortgages and MBSs.
Money after-tax rate of return minus the inflation rate.
The discount rate that reflects only the business risks of a project and abstracts from the
Swap in which the principal or national amount rises (falls) as interest rates
The periodic rate times the number of periods in a year. For example, a 5%
Arithmetic mean return.
Floating rate preferred stock, the dividend on which is adjusted every
A firm's required payout to the bondholders and to the stockholders expressed as a
Average rate of return (ARR)
The ratio of the average cash inflow to the amount invested.
Average tax rate
Taxes as a fraction of income; total taxes divided by total taxable income.
A strategy in which the maturities of the securities included in the portfolio are concentrated
Base interest rate
Related: Benchmark interest rate.
Basic business strategies
Key strategies a firm intends to pursue in carrying out its business plan.
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
Break-even payment rate
The prepayment rate of a MBS coupon that will produce the same CFY as that of
Break-even tax rate
The tax rate at which a party to a prospective transaction is indifferent between entering
Broker loan rate
Related: Call money rate.
A strategy in which a portfolio is constructed so that the maturities of its securities are highly
A passive investment strategy with no active buying and selling of stocks from the
Call money rate
Also called the broker loan rate , the interest rate that banks charge brokers to finance
An upper limit on the interest rate on a floating-rate note.
Money invested in a firm.
Net result of public and private international investment and lending activities.
decision Allocation of invested funds between risk-free assets versus the risky portfolio.
Capital asset pricing model (CAPM)
An economic theory that describes the relationship between risk and
A firm's set of planned capital expenditures.
The process of choosing the firm's long-term capital assets.
Amount used during a particular period to acquire or improve long-term assets such as
The transfer of capital abroad in response to fears of political risk.
When a stock is sold for a profit, it's the difference between the net sales price of securities and
Capital gains yield
The price change portion of a stock's return.
A lease obligation that has to be capitalized on the balance sheet.
The difference between the net cost of a security and the net sale price, if that security is sold at a loss.
The market for trading long-term debt instruments (those that mature in more than one year).
Capital market efficiency
Reflects the relative amount of wealth wasted in making transactions. An efficient
Capital market imperfections view
The view that issuing debt is generally valuable but that the firm's
Capital market line (CML)
The line defined by every combination of the risk-free asset and the market portfolio.
Placing one or more limits on the amount of new investment undertaken by a firm, either
The makeup of the liabilities and stockholders' equity side of the balance sheet, especially
Amounts of directly contributed equity capital in excess of the par value.
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
Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures
interest that is not immediately expensed, but rather is considered as an asset and is then
Cash flow after interest and taxes
Net income plus depreciation.
A strategy in which a put and with the same strike price and expiration are either both
Complete capital market
A market in which there is a distinct marketable security for each and every
interest paid on previously earned interest as well as on the principal.
A firm engaged in two or more unrelated businesses.
A merger involving two or more firms that are in unrelated businesses.
The acquisition of one firm by anther firm.
Debt obligations issued by corporations.
A legal document creating a corporation.
One of the three areas of the discipline of finance. It deals with the operation of the firm
Corporate financial management
The application of financial principals within a corporation to create and
Corporate financial planning
Financial planning conducted by a firm that encompasses preparation of both
Corporate processing float
The time that elapses between receipt of payment from a customer and the
Corporate tax view
The argument that double (corporate and individual) taxation of equity returns makes
Corporate taxable equivalent
rate of return required on a par bond to produce the same after-tax yield to
Cost of capital
The required return for a capital budgeting project.
Cost of limited partner capital
The discount rate that equates the after-tax inflows with outflows for capital
In bonds, notes or other fixed income securities, the stated percentage rate of interest, usually
Covered call writing strategy
A strategy that involves writing a call option on securities that the investor
Covered interest arbitrage
A portfolio manager invests dollars in an instrument denominated in a foreign
Covered or hedge option strategies
Strategies that involve a position in an option as well as a position in the
The interest rate offered on an investment type insurance policy.
The exchange rate between two currencies expressed as the ratio of two foreign exchange rates
The return at which two alternative projects have the same net present value.
Current rate method
Under this currency translation method, all foreign currency balance-sheet and income
Ability to borrow. The amount a firm can borrow up to the point where the firm value no
Total par value (number of shares issued, multiplied by the par value of each share). Also
Refers to multi-period cash flow matching.
The interest rate that the Federal Reserve charges a bank to borrow funds when a bank is
The fixed or floating rate paid on preferred stock based on par value.
Dollar-weighted rate of return
Also called the internal rate of return, the interest rate that will make the
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
A measure of the time value of money that fully reflects the effects of compounding.
Efficient capital market
A market in which new information is very quickly reflected accurately in share
Equilibrium rate of interest
The interest rate that clears the market. Also called the market-clearing interest
An agreement in which one party, for an upfront premium, agrees to compensate the other at
The price of one country's currency expressed in another country's currency.
Exchange Rate Mechanism (ERM)
The methodology by which members of the EMS maintain their
Exchange rate risk
Also called currency risk, the risk of an investment's value changing because of currency
Federal funds rate
This is the interest rate that banks with excess reserves at a Federal Reserve district bank
A country's decision to tie the value of its currency to another country's currency, gold
A loan on which the rate paid by the borrower is fixed for the life of the loan.
In an interest rate swap the counterparty who pays a fixed rate, usually in exchange for a
Floating exchange rate
A country's decision to allow its currency value to freely change. The currency is not
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