An average life is then estimated from that prepayment assumption. To accomplish this, a prepayment speed assumption (PPA) must be made when the MBS is purchased. Under this methodology, premiums are amortized and discounts are accreted into income over the average life of the securities. See option-adjusted duration.Ī methodology for amortizing premiums or accreting discounts for MBSs that is required by FAS 91. (3) A synonym for option-adjusted duration. See convexity, duration, Macaulay duration, and modified duration More accurate than Macaulay duration or modified duration. (1) One of several methods of expressing duration. (2) The date on which cash flows due under a swap contract begin to accrue. (1) The date on which funds will be transferred electronically from or to a customer’s account. Sometimes called net portfolio value (NPV).Ī seldom-used expression to refer to the yield on an investment expressed on a compound interest basis. Previously known by the less-accurate name market value of portfolio equity or MVPE. It is a long-term, economic target for measuring rate risk exposure. The rate risk exposure target focuses on the amount of change in the economic value of equity that might result from a change in prevailing interest rates. This difference is a proxy or estimate used for capital when the sensitivity of capital to changes in prevailing interest rates is calculated. The difference between the sum of the present values of all cash flows from assets and the sum of the present values of all cash flows from liabilities. One measure of exposure to interest rate risk. Since EVA is a registered mark, the phrase shareholder value added, or SVA, is often used instead. The EDC has no responsibility for the payment of interest and principal on the debt except to pass the business's rent payments through to the investors. The lease rate reflects the EDC’s low cost of capital. The lower-cost funds are used by the EDC to buy fixed assets that are then leased to the business. Consequently, the EDC can raise funds at lower interest rates than businesses. The EDC can, as a municipal entity, borrow funds or sell securities that are, in most cases, exempt from federal income tax. Rate forecasts made by econometric models are seldom correct.Ī special type of corporation established by a community solely to act as a conduit. These models are sometimes used to predict interest rates. Some economists use these models to predict the alterations that will result from changes in one or more economic conditions. Systems of mathematical formulas that attempt to represent the interaction of various macroeconomics variables. Not to be confused with retained earnings, a name for the quantity on the balance sheet that includes the accumulated total of earnings retained.Īcronym for earnings before income taxes. The after-tax net income minus dividends then divided by the after-tax net income. The percent of current period earnings retained by the firm as opposed to being paid out as dividends or partners’ withdrawals. The earnings credit rate is always expressed as an annual rate even though the calculations are usually done monthly. The same calculation can work in the opposite way by applying the earnings credit rate to the actual service charges to determine how much deposit balance is needed to pay for the charges. See value at risk (VAR) for an alternative measure.Īn interest rate applied to investable account balances to determine how much expense for bank services used by a depositor is offset by the deposits maintained by that depositor. One measure of an institution’s exposure to adverse consequences from changes in prevailing interest rates. The quantity by which net income is projected to decline in the event of an adverse change in prevailing interest rates. The most common trigger is a measure of how the portfolio yield net of charge-offs exceeds the base rate of servicing plus the investor coupon rate. Once triggered, the early amortization provision requires that the monthly principal payments be distributed to investors as they are received. One or more triggers, defined in the asset backed security's documentation require the termination of revolving periods, controlled amortization periods and/or accumulation periods. A B C D E F G H I J K L M N O P Q R S T U V W X Y ZĪ type of credit enhancement used in asset backed securities.
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