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Definition of Reinstatement
This is the restoration of a lapsed life insurance policy. The life insurance company will require evidence of continuing good health and the payment of all past due premiums plus interest.
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.
The accumulated coupon interest earned but not yet paid to the seller of a bond by the
The discount rate that reflects only the business risks of a project and abstracts from the
requirement that none of an order be executed unless all of it can be executed at the specified price.
Total costs, explicit and implicit.
An arrangement whereby a security issue is canceled if the underwriter is unable
Swap in which the principal or national amount rises (falls) as interest rates
An annuity with n payments, wherein the first payment is made at time t = 0 and the last
The decision regarding how an institution's funds should be distributed among the
A common element of a financial plan that describes projected capital spending and the
Also referred to as the weighted-average life (WAL). The average number of years that each
A statistical compilation formulated by a sovereign nation of all economic transactions
Any large principal payment due at maturity for a bond or loan with or without a a sinking
Related: 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
Large and creditworthy company.
In the mortgage pipeline, the risk that prospective borrowers of loans committed to be
Break-even lease payment
The lease payment at which a party to a prospective lease is indifferent between
Break-even payment rate
The prepayment rate of a MBS coupon that will produce the same CFY as that of
An option that gives the right to buy the underlying futures contract.
Call an option
To exercise a call option.
A date before maturity, specified at issuance, when the issuer of a bond may retire part of the bond
Call money rate
Also called the broker loan rate , the interest rate that banks charge brokers to finance
An option contract that gives its holder the right (but not the obligation) to purchase a specified
The price, specified at issuance, at which the issuer of a bond may retire part of the bond at a
The price for which a bond can be repaid before maturity under a call provision.
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
The combination of cash flow uncertainty and reinvestment risk introduced by a call provision.
A swaption in which the buyer has the right to enter into a swap as a fixed-rate payer. The
A financial security such as a bond with a call option attached to it, i.e., the issuer has the right to
decision allocation of invested funds between risk-free assets versus the risky portfolio.
Amounts of directly contributed equity capital in excess of the par value.
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.
Communication barrier between financiers (investment bankers) and traders. This barrier is
Clearing House Automated Payments System (CHAPS)
A computerized clearing system for sterling funds
Clearing House Interbank Payments System (CHIPS)
An international wire transfer system for high-value
Refers to the fact that the merger of two firms decreases the probability of default on
Procedures followed by a firm in attempting to collect accounts receivables.
Related: Unsystematic risk
interest paid on previously earned interest as well as on the principal.
Comprehensive due diligence investigation
The investigation of a firm's business in conjunction with a
Cost company arrangement
Arrangement whereby the shareholders of a project receive output free of
A bond's interest payments.
A short call option position in which the writer owns the number of shares of the underlying
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
Date of payment
Date dividend checks are mailed.
A provision that prohibits the company from calling the bond before a certain date. During This
Deferred nominal life annuity
A monthly fixed-dollar payment beginning at retirement age. It is nominal
Delivery versus payment
A transaction in which the buyer's payment for securities is due at the time of
Depository Trust Company (DTC)
DTC is a user-owned securities depository which accepts deposits of
An established guide for the firm to determine the amount of money it will pay as dividends.
An instrument evidencing the obligation of a seller to deliver securities sold to the buyer.
Dynamic asset allocation
An asset allocation strategy in which the asset mix is mechanistically shifted in
Earnings before interest and taxes (EBIT)
A financial measure defined as revenues less cost of goods sold
For any entity, the difference between the market value of all its assets and the market
Effective annual interest rate
An annual measure of the time value of money that fully reflects the effects of
Effective call price
The strike price in an optional redemption provision plus the accrued interest to the
Equilibrium rate of interest
The interest rate that clears the market. Also called the market-clearing interest
A type of mortgage pipeline risk that is generally created when the terms of the loan to be
Federal Deposit Insurance Corporation (FDIC)
A federal institution that insures bank deposits.
Federally related institutions
Arms of the federal government that are exempt from SEC registration and
FHA prepayment experience
The percentage of loans in a pool of mortgages outstanding at the origination
With CMOs, the start of the cash flow cycle for the cash flow window.
The use of government spending and taxing for the specific purpose of stabilizing the economy.
Forward interest rate
interest rate fixed today on a loan to be made at some future date.
Generally Accepted Accounting Principals (GAAP)
A technical accounting term that encompasses the
A 1933 act in which Congress forbade commercial banks to own, underwrite, or deal in
A delivery in which everything - endorsement, any necessary attached legal papers, etc. - is in
Good delivery and settlement procedures
Refers to PSA Uniform Practices such as cutoff times on delivery
Good 'til canceled
Sometimes simply called "GTC", it means an order to buy or sell stock that is good until
Excess of the purchase price over the fair market value of the net assets acquired under purchase
Graduated-payment mortgages (GPMs)
A type of stepped-payment loan in which the borrower's payments
interest earned before taxes are deducted.
Guaranteed insurance contract
A contract promising a stated nominal interest rate over some specific time
A corporation that owns enough voting stock in another firm to control management and
The right of the homeowner to prepay, or call, the mortgage at any time.
Initial margin requirement
When buying securities on margin, the proportion of the total market value of
The sale of an asset in exchange for a specified series of payments (the installments).
The law of averages. The average outcome for many independent trials of an experiment
Loan made by one unit of a corporation to another unit of the same corporation.
Transaction carried out between two units of the same corporation.
The price paid for borrowing money. It is expressed as a percentage rate over a period of time and
Interest coverage ratio
The ratio of the earnings before interest and taxes to the annual interest expense. This
Interest coverage test
A debt limitation that prohibits the issuance of additional long-term debt if the issuer's
Interest equalization tax
Tax on foreign investment by residents of the U.S. which was abolished in 1974.
Contractual debt payments based on the coupon rate of interest and the principal amount.
Interest on interest
interest earned on reinvestment of each interest payment on money invested.
Interest-only strip (IO)
A security based solely on the interest payments form a pool of mortgages, Treasury
Interest rate agreement
An agreement whereby one party, for an upfront premium, agrees to compensate the
Interest rate cap
Also called an interest rate ceiling, an interest rate agreement in which payments are made
Interest rate ceiling
Related: interest rate cap.
Interest rate floor
An interest rate agreement in which payments are made when the reference rate falls
Interest rate on debt
The firm's cost of debt capital.
Interest rate parity theorem
interest rate differential between two countries is equal to the difference
Interest rate risk
The risk that a security's value changes due to a change in interest rates. For example, a
Interest rate swap
A binding agreement between counterparties to exchange periodic interest payments on
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