|Interest Rate Risk|
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Definition of Interest Rate Risk
Interest Rate Risk
Possibility that interest rates will rise during the term of a loan thereby increasing the annual cost of borrowing.
Interest rate risk
The risk that a security's value changes due to a change in interest rates. For example, a
Related: interest rate risk
Schedule of depreciation rates allowed for tax purposes.
Any depreciation method that produces larger deductions for depreciation in the
(1) The estimated useful life of the fixed asset being depreciated is
Any of several methods that recognize an increased amount
A method of investment appraisal that measures
the rate of earnings obtained on the average capital investment over the life of a capital project; computed as average annual profits divided by average investment; not based on cash flow
The accumulated coupon interest earned but not yet paid to the seller of a bond by the
The amount of interest accumulated on a debt security between
The amount of interest owing but not paid.
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
Annual percentage rate (APR)
The periodic rate times the number of periods in a year. For example, a 5%
annual percentage rate (APR)
interest rate that is annualized using simple interest.
Arithmetic average (mean) rate of return
Arithmetic mean return.
The amount of total risk that can be eliminated by diversification by
Auction rate preferred stock (ARPS)
Floating rate preferred stock, the dividend on which is adjusted every
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.
average tax rate
Total taxes owed divided by total income.
The risk that a firm will be unable to meet its debt obligations. Also referred to as default or insolvency risk.
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.
The uncertainty about the basis at the time a hedge may be lifted. Hedging substitutes basis risk for
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
risk of a firm measured from the standpoint of an investor who holds a highly diversified portfolio.
Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees
A committee formed in response to SEC chairman Arthur Levitt's initiative to improve the financial
book rate of return
Accounting income divided by book value.
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
The risk that the cash flow of an issuer will be impaired because of adverse economic
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
The combination of cash flow uncertainty and reinvestment risk introduced by a call provision.
A discount rate used to find the present value of a series of future cash receipts. Sometimes called discount rate.
interest that is not immediately expensed, but rather is considered as an asset and is then
interest incurred during the construction period on monies invested in
cash burn rate
A relatively recent term that refers to how fast a business
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
The risk that a foreign debtor will be unable to pay its debts because of business events,
Related: Unsystematic risk
See asset-specific risk
a foundation for the compensation plan that addresses the role compensation should play in the organization
The risk that a project will not be brought into operation successfully.
interest paid on previously earned interest as well as on the principal.
interest paid on principal and on interest earned in previous
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
interest earned on 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.
computer integrated manufacturing (CIM)
the integration of two or more flexible manufacturing systems through the use of a host computer and an information networking system
an organizational strategy in which company management decides to confront, rather than avoid, competition; an organizational strategy in which company management still attempts to differentiate company
A firm engaged in two or more unrelated businesses.
A merger involving two or more firms that are in unrelated businesses.
The percentage tax charged by a state to an employer to
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 leadership strategy
a plan to achieve the position in a
The risk that the other party to an agreement will default. In an options contract, the risk
Country financial risk
The ability of the national economy to generate enough foreign exchange to meet
Country risk General
Level of political and economic uncertainty in a country affecting the value of loans or
In bonds, notes or other fixed income securities, the stated percentage rate of interest, usually
The rate of interest paid on a debt security. Generally stated on an
The nominal interest rate that the issuer promises to pay the
Annual interest payment as a percentage of face value.
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 risk that an issuer of debt securities or a borrower may default on his obligations, or that the
Financial and moral risk that an obligation will not be paid and a loss will result.
The interest rate offered on an investment type insurance policy.
Refers to the volatility of returns on international investments caused by events associated
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.
Related: Exchange rate risk
Currency risk sharing
An agreement by the parties to a transaction to share the currency risk associated with
Current rate method
Under this currency translation method, all foreign currency balance-sheet and income
Daily Interest Accumulation
Account in which interest is accrued daily and credited to the account at the end of a specified time.
Refers to multi-period cash flow matching.
Also referred to as credit risk (as gauged by commercial rating companies), the risk that an
a technique for avoiding competition by distinguishing a product or service from that of competitors through adding sufficient value (including quality and/or features) that customers are willing to pay
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 interest rate that the Federal Reserve charges a bank to borrow funds when a bank is
The rate of interest used to calculate the present value of a stream
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