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Definition of ThetaThetaAlso called time decay, the ratio of the change in an option price to the decrease in time to expiration. ThetaThe rate of change in the price of a derivative security relative to time.
Related Terms:GreeksCollectively, "greeks" refer to the financial measures delta, gamma, Time decayRelated: theta. "Soft" Capital RationingCapital rationing that under certain circumstances can be violated or even viewed Abandonment optionThe option of terminating an investment earlier than originally planned. Accelerated cost recovery system (ACRS)Schedule of depreciation rates allowed for tax purposes. Accelerated depreciationAny depreciation method that produces larger deductions for depreciation in the accelerated depreciation(1) The estimated useful life of the fixed asset being depreciated is Accelerated depreciationAny of several methods that recognize an increased amount Acceleration ClauseClause causing repayment of a debt, if specified events occur or are not met. Accelerationist HypothesisBelief that an effort to keep unemployment below its natural rate results in an accelerating inflation. Account ValueThe sum of all the interest options in your policy, including interest. Accounting changeAn alteration in the accounting methodology or estimates used in Accounting rate of return (ARR)A method of investment appraisal that measures accounting rate of return (ARR)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 accounts receivable turnover ratioA ratio computed by dividing annual Accumulated ValueAn amount of money invested plus the interest earned on that money. Acid-test ratioAlso called the quick ratio, the ratio of current assets minus inventories, accruals, and prepaid ACID-TEST RATIOA ratio that shows how well a company could pay its current debts using only its most liquid or “quick” assets. It’s a more pessimistic—but Also realistic—measure of safety than the current ratio, because it ignores sluggish, hard-toliquidate current assets like inventory and notes receivable. Here’s the formula: Acid-test RatioSee quick ratio acid test ratio (also called the quick ratio)The sum of cash, accounts receivable, and short-term marketable Active portfolio strategyA strategy that uses available information and forecasting techniques to seek a Adjustable rate preferred stock (ARPS)Publicly traded issues that may be collateralized by mortgages and MBSs. Adjusted Cash Flow Provided by Continuing OperationsCash flow provided by operating Adjusted present value (APV)The net present value analysis of an asset if financed solely by equity After-tax real rate of returnMoney after-tax rate of return minus the inflation rate. All equity rateThe discount rate that reflects only the business risks of a project and abstracts from the American optionAn option that may be exercised at any time up to and including the expiration date. American optionAn option that can be exercised any time until its American Stock Exchange (AMEX)The second-largest stock exchange in the United States. It trades American-style optionAn option contract that can be exercised at any time between the date of purchase and Amortizing interest rate swapSwap 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. Appraisal ratioThe signal-to-noise ratio of an analyst's forecasts. The ratio of alpha to residual standard approximated net realizable value at split-off allocationa method of allocating joint cost to joint products using a Arbitrage-free option-pricing modelsYield curve option-pricing models. Arithmetic average (mean) rate of returnArithmetic mean return. Arm's length priceThe price at which a willing buyer and a willing unrelated seller would freely agree to Articles of incorporationLegal document establishing a corporation and its structure and purpose. Asian optionoption based on the average price of the asset during the life of the option. Ask priceA dealer's price to sell a security; Also called the offer price. Asset activity ratiosratios that measure how effectively the firm is managing its assets. Asset-backed securityA security that is collateralized by loans, leases, receivables, or installment contracts Asset/equity ratioThe ratio of total assets to stockholder equity. asset turnover ratioA broad-gauge ratio computed by dividing annual Auction rate preferred stock (ARPS)Floating rate preferred stock, the dividend on which is adjusted every Available-for-Sale SecurityA debt or equity security not classified as a held-to-maturity security or a trading security. Can be classified as a current or noncurrent investment depending on the intended holding period. Average (across-day) measuresAn estimation of price that uses the average or representative price of a Average maturityThe average time to maturity of securities held by a mutual fund. changes in interest rates Average rate of return (ARR)The ratio of the average cash inflow to the amount invested. Average tax rateTaxes as a fraction of income; total taxes divided by total taxable income. average tax rateTotal taxes owed divided by total income. Balloon maturityAny large principal payment due at maturity for a bond or loan with or without a a sinking Barbell strategyA strategy in which the maturities of the securities included in the portfolio are concentrated Bargain-purchase-price optionGives the lessee the option to purchase the asset at a price below fair market Barrier optionsContracts with trigger points that, when crossed, automatically generate buying or selling of Base interest rateRelated: Benchmark interest rate. Basic business strategiesKey strategies a firm intends to pursue in carrying out its business plan. Basic Earnings Power RatioPercentage of earnings relative to total assets; indication of how Basis priceprice expressed in terms of yield to maturity or annual rate of return. Basket optionsPackages that involve the exchange of more than two currencies against a base currency at Benchmark interest rateAlso called the base interest rate, it is the minimum interest rate investors will Benefit Ratio MethodThe proportion of unemployment benefits paid to a company’s Benefit ValueThe amount of cash payable on a benefit. Benefit Wage Ratio MethodThe proportion of total taxable wages for laid off Bid priceThis is the quoted bid, or the highest price an investor is willing to pay to buy a security. Practically Bill of exchangeGeneral term for a document demanding payment. Binomial option pricing modelAn option pricing model in which the underlying asset can take on only two Black-Scholes option-pricing modelA model for pricing call options based on arbitrage arguments that uses Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit CommitteesA committee formed in response to SEC chairman Arthur Levitt's initiative to improve the financial Bond valueWith respect to convertible bonds, the value the security would have if it were not convertible book rate of returnAccounting income divided by book value. Book valueA company's book value is its total assets minus intangible assets and liabilities, such as debt. A BOOK VALUEAn asset’s cost basis minus accumulated depreciation. Book ValueThe value of an asset as carried on the balance sheet of a Book valueAn asset’s original cost, less any depreciation that has been subsequently incurred. book valueNet worth of the firm’s assets or liabilities according book value and book value per shareGenerally speaking, these terms BOOK VALUE OF COMMON STOCKThe theoretical amount per share that each stockholder would receive if a company’s assets were sold on the balance sheet’s date. Book value equals: Book value per shareThe ratio of stockholder equity to the average number of common shares. Book value Book Value per ShareThe book value of a company divided by the number of shares Break-even payment rateThe prepayment rate of a MBS coupon that will produce the same CFY as that of Break-even tax rateThe tax rate at which a party to a prospective transaction is indifferent between entering Break-even timeRelated: Premium payback period. Broker loan rateRelated: Call money rate. Bullet strategyA strategy in which a portfolio is constructed so that the maturities of its securities are highly business-value-added activityan activity that is necessary for the operation of the business but for which a customer would not want to pay Buy-and-hold strategyA passive investment strategy with no active buying and selling of stocks from the cafeteria plan a “menu” of fringe benefit options that includecash or nontaxable benefits Call an optionTo exercise a call option. Call money rateAlso called the broker loan rate , the interest rate that banks charge brokers to finance Call optionAn option contract that gives its holder the right (but not the obligation) to purchase a specified Call OptionA contract that gives the holder the right to buy an asset for a call optionRight to buy an asset at a specified exercise price on or before the exercise date. Call priceThe price, specified at issuance, at which the issuer of a bond may retire part of the bond at a Call priceThe price for which a bond can be repaid before maturity under a call provision. Canadian Deposit Insurance CorporationBetter known as CDIC, this is an organization which insures qualifying deposits and GICs at savings institutions, mainly banks and trust companys, which belong to the CDIC for amounts up to $60,000 and for terms of up to five years. Many types of deposits are not insured, such as mortgage-backed deposits, annuities of duration of more than five years, and mutual funds. CAPITAL IN EXCESS OF PAR VALUEWhat a company collected when it sold stock for more than the par value per share. Capital rationingPlacing one or more limits on the amount of new investment undertaken by a firm, either capital rationinga condition that exists when there is an capital rationingLimit set on the amount of funds available for investment. capital recoveryrefers to recouping, or regaining, invested capital over
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