A theory that the timing of loan payments should be tied to the timing of a borrowerís expected income.
To see how the ledger items change over item, we can choose a base year balance sheet or income statement and then express each item relative to the base year. Such statements are referred to as...
Line, drawn on a mapping of portfolio weights, which shows the combinations of weights all of which provide for a particular portfolio rate of return.
There is typically a lag of about three months between the time the weighted average coupon of an MBS pool has crossed the threshold for refinancing and an acceleration in prepayment speed is...
A legal constraint known as the impairment of capital rule is designed to protect the firmís creditors. It stipulates that dividends cannot exceed the amount of retained earnings listed on the...
A reverse repurchase agreement between mortgage firms and securities dealers. Under the agreement, the firm sells federal agency-guaranteed MBS and simultaneously agrees to repurchase them at a...
A record of the services used by each customer.
The replacement of one asset or position with another that has equivalent risk and a higher expected rate of return. This is an implicit instead of an explicit arbitrage.
Swap) A swap where yield on a Treasury bond is exchanged for either a fixed rate or a floating rate on each payment date. For example, agreement to exchange a LIBOR rate for Treasury rate (e.g., the...
An estimate of liquid funds needed to cover deposit outflows or loan demand in excess of trend or seasonal factors. D
A butterfly spread in which the distance between strike prices is not equal.
Transaction costs that include the assessment of the investment merits of a financial asset.
A theory suggesting that banks make only shortterm, self-liquidating loans that match the maturity of bank deposits.
A submartingale is a fair-game model where prices in the next period are expected to be greater than prices in the current period. A submartingale model is appropriate for an expanding economy. One...
Information that is known to some people but not to other people.
The argument that specifies that the various agency costs create a complex environment in
which total agency costs are at a minimum with some, but less than 100%, debt financing.
The use of financial ratios and fundamental analysis to estimate firm specific credit quality examining items such as leverage and coverage measures, with an evaluation of the level and stability of...
Relevant information about a company that has not yet been made public. It is illegal for holders of this information to make trades based on it, however received.
Organizations that furnish investment and other types of information, such as information that helps a firm monitor its cash position.
A swap in which a money manager exchanges one bond for another bond that is similar in terms of coupon, maturity, and credit quality, but offers a higher yield.
A finance company owned by a manufacturer that provides financing to buyers of the firmís products. For example, General Motors Acceptance Corporation is a captive finance company.
Nonpublic knowledge about a corporation possessed by corporate officers, major owners, or other individuals, with privileged access to information about a firm.
Part or whole return that is an outlier or not due to systematic influences (market wide influences). Said differently, abnormal returns are above those predicted by the market movement alone.
In case of liquidation of a firmís assets, the rule requires satisfaction of certain claims prior to the satisfaction of other claims.
The rise in the stock price following the dividend signal.
Refers to the fact that the merger of two firms decreases the probability of default on either firm's debt.
Trades in which an investor believes he or she possesses pertinent information not currently reflected in the stock's price.
Establishes priority of claims under liquidation. Once the corporation is determined to be bankrupt, liquidation takes place. The distribution of the proceeds of the liquidation occurs according to...
The accounting rate of return (ARR) method (which is one of the methods for capital budgeting decision) computes a rate of return for a project based on a ratio of average project income to...
A discipline concerned with determining value and making decisions. The finance function allocates resources, which includes acquiring, investing, and managing resources.
Is the ISDN (integrated services digital network) interface that consists of two 64 kilobit B channels and a 16 kilobit signaling channel.
An icon-based interface, wherein the user clicks on an icon to initiate a task. Contrast with
selecting activities from a menu-driven interface or running a command on the command line.
Schedule of depreciation rates allowed under certain tax provisions.
The incremental costs of having an agent make decisions for a principal.
Elgers (1980) proposed accounting-based beta forecasting. Accounting-based beta forecasts rely upon the relationship of accounting information such as the growth rate of the firm, earning before...
The option of terminating an investment earlier than originally planned or agreed.
A means of compensating the broker of a program trade using benchmark prices for issues to be traded in determining
commissions or fees.
Return on a stock beyond what would be the expected return that is predicted by market movements alone.
Absolute cost advantages can place competitors at a cost disadvantage, even if the scale of operations is similar for both firms. Such cost advantages can arise from an advanced position along the...