Financial Terms
Notional principal amount

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Definition of Notional principal amount

Notional Principal Amount Image 1

Notional principal amount

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



Related Terms:

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.


Generally Accepted Accounting Principals (GAAP)

A technical accounting term that encompasses the
conventions, rules, and procedures necessary to define accepted accounting practice at a particular time.


Principal

1) The total amount of money being borrowed or lent.
2) The party affected by agent decisions in a principal-agent relationship.


Principal

The original amount loaned, which is repaid plus interest. See face value.


Principal

The obligation due under a debt instrument exclusive of interest.



Principal-agent relationship

A situation that can be modeled as one person, an agent, who acts on the behalf
of another person, the principal.


Principal amount

The face amount of debt; the amount borrowed or lent. Often called principal.


Notional Principal Amount Image 2

Principal Amount

Generally, refers to the face value of a debt.


Principal of diversification

Highly diversified portfolios will have negligible unsystematic risk. In other
words, unsystematic risks disappear in portfolios, and only systematic risks survive.


Principal only (PO)

A mortgage-backed security in which the holder receives only principal cash flows on
the underlying mortgage pool. The principal-only portion of a stripped MBS. For PO securities, all of the
principal distribution due from the underlying collateral pool is paid to the registered holder of the stripped
MBS based on the current face value of the underlying collateral pool.


Principal value

See Par value.


Remaining principal balance

The amount of principal dollars remaining to be paid under the mortgage as of
a given point in time.


Value additivity principal

Prevails when the value of a whole group of assets exactly equals the sum of the
values of the individual assets that make up the group of assets. Stated differently, the principle that the net
present value of a set of independent projects is just the sum of the net present values of the individual projects.



 

 

 

 

 

 

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