A stock is considered overvalued when its current market price does not seem justified based on its earnings and growth potential, suggesting that it is likely to decrease in price.
Principal and Interest (P&I) refers to the two main components of a loan payment. The principal repayment decreases the loan balance, while the interest is the cost of borrowing the money.
Equal to the established value; face amount or stated value of a negotiable instrument, stock, or bond, and not the actual value it would receive on the open market. Bills of exchange, stocks, and similar instruments are at par when they sell for their stated value.
In finance, partial delivery occurs when a broker or seller fails to deliver the full quantity of a security or commodity that is stipulated in a contract. For instance, if a contract requires the delivery of 10,000 shares of a stock, but only 7,000 shares are delivered, this would be termed as a partial delivery.
A participation loan is a financial arrangement where multiple lenders share in providing a loan, typically with one lender acting as the lead to service the loan. This can distribute the risk and allow for larger loan amounts than a single lender might handle.
The Payback Period Method is a capital budgeting technique that calculates the time required for projected cash inflows to equal initial investment expenditure, often used to gauge project risk.
A payer is an individual or entity that is responsible for the payment of a bill, fees, or other financial obligations. The role of the payer is critical in transactional and service delivery contexts within various economic sectors.
Per annum, a Latin term meaning 'each year' or 'annually,' is used across various fields to denote the yearly occurrence or rate of an event.
A statistical term used to express a quantity as a portion of the whole, which is assigned a value of 100. Price changes are often reported as percentage increases or declines.
A perpetuity is a financial instrument that provides continuous payments indefinitely. It has no end date, meaning it theoretically continues forever. The Rule Against Perpetuities restricts the length of time properties can be held or devised to lineage.
An in-depth explanation of Personal Interest Expense, how it differs from business interest expenses, examples, FAQs, related terms, and additional resources.
A petty cash fund is a small reserve of cash that an organization uses for making small, unexpected payments. Petty cash vouchers document each transaction.
The term 'position' can refer to various contexts, from strategic market placement to financial conditions, and investments. In investments, it is a key concept involving either long or short stakes in securities or markets.
Positive carry is a financial situation in which the cost of borrowing money to finance an investment is lower than the yield earned from that investment.
An investment strategy involving the use of borrowed funds to increase the return on an investment.
Preferred stock is a class of ownership in a corporation that has a higher claim on its assets and earnings than common stock. Preferred shares generally have a dividend that must be paid out before dividends to common shareholders and the shares usually do not carry voting rights.
A premium bond is a type of bond that sells for more than its face or redemption value. For example, if a bond with a face value of $1,000 sells for $1,050, it is considered a premium bond. The premium can be amortized on a straight-line basis over the life of the bond for tax purposes.
A premium rate refers to the price per unit of insurance coverage or, in finance, the premium fee applied to certain stocks when borrowed for trading activities such as short selling.
A prepayment clause is a provision in a bond or mortgage that allows the borrower to pay off the loan before its scheduled due date. In some cases, there may be penalties for prepayment, such as the waiver of interest that is not yet due.
A prepayment penalty is a fee paid by a borrower for the privilege of retiring a loan early. It is not a tax-deductible interest expense.
Prepayment privilege refers to the right of a borrower to repay a loan before its scheduled maturity date without incurring penalties.
Present value, also known as discounted value, is the current worth of a sum of money or a stream of cash flows that will be received or paid in the future, calculated using a specific discount rate. It is an essential concept in finance, particularly in discounted cash flow (DCF) analysis.
The present value (PV) of an annuity is the current value of a series of future payments, discounted at a specific interest rate over a specific number of periods. It is a fundamental concept in finance and accounting, allowing individuals and businesses to evaluate the worth of future payments in today's terms.
The pretax rate of return is the percentage yield or capital gain generated by a particular investment or security before considering the impact of taxes.
Prime Paper refers to the highest quality commercial paper, rated by major credit rating agencies like Moody's Investor's Service. It is considered investment-grade and is categorized based on its quality level.
The prime rate refers to the interest rate that commercial banks charge their most creditworthy customers, typically large corporations. It serves as a key benchmark in determining lending rates for consumers and businesses.
The principal sum refers to the core amount of a debt or financial obligation. In finance, it is the initial amount of money borrowed without interest. In insurance, it designates the amount specified to be paid to the beneficiary under the policy, such as the death benefit.
Proceeds refer to the amount of money or capital generated from a transaction or a series of transactions, typically calculated after applicable costs, fees, and commissions have been deducted.
An expression that indicates increasing difficulty in maintaining the same amount or rate of profit due to reduced sales, lower prices, rising production costs, financing costs, administrative expenses, or taxes.
Program budgeting is a method of budgeting expenditures to meet programmatic objectives rather than using a line-item basis. It focuses on specific performance objectives and systematically formulates costs for all related functions, providing a clear link between expenditures and outcomes.
A public offering refers to the sale of equity shares or other financial instruments by an organization to the public to raise capital. This process typically involves issuing stock through an initial public offering (IPO).
A Public-Private Partnership (PPP) is a cooperative arrangement between one or more public and private sectors, typically of a long-term nature, designed to finance, build, and operate projects such as public transportation systems, parks, and social infrastructure.
The amount of money utilized to acquire a business or investment, irrespective of the source.
The term 'quarterly' commonly refers to events, processes, or publications occurring every three months, but it holds special significance in the contexts of business, finance, and securities.
The rate of interest represents the cost of borrowing money expressed as a percentage of the principal amount. It is a fundamental concept in both personal and corporate finance, impacting loans, savings, investment decisions and the overall economy.
Rate of Return on Equity (ROE) measures the profitability of an investment, focusing on net income generated by shareholders' equity. It provides insights into how efficiently a company uses its equity base to generate profits.
In economics and finance, 'real' is used to describe variables such as prices, wages, and interest rates that have been adjusted for inflation, providing a more accurate representation of purchasing power and economic value over time.
The real interest rate is the nominal interest rate adjusted for inflation. It represents the true cost of borrowing and the real yield on investments.
An accounting method that records transactions based on the actual receipt or payment of cash rather than when the transaction occurs.
A recourse loan is a type of loan in which the lender has the right to pursue the borrower's other assets beyond the collateral if the borrower fails to meet the repayment terms.
The term 'recovery' in various fields refers to the period when economic activity picks up after a downturn, absorption of costs or collections in finance, and rising prices in investment markets.
Redeeming refers to various financial and legal acts of reclaiming or repurchasing something, such as cashing in a maturing note, bond, or curing a mortgage default.
A redeemable bond, also known as a callable bond, is a type of bond that the issuer can redeem before its maturity date at a predefined call price.
The redemption date refers to the specific date on which a bond or other fixed-income security is repaid by the issuer, fulfilling the terms of the debt agreement.
The redemption price is the predetermined value at which a bond or preferred stock can be repurchased or redeemed by the issuer before its maturity date, commonly referred to as the call price.
Refunding refers to the process of issuing new securities to retire existing ones, aiming to extend the maturity period or reduce the cost of debt service, particularly in finance. In merchandising, it describes returning money to a dissatisfied customer.
A Regulated Investment Company (RIC) is a type of investment company in the United States that is eligible to pass through income to shareholders without having to pay taxes at the corporate level, provided it complies with certain regulatory requirements outlined by the Internal Revenue Code.
Understanding remittance, its types and examples, frequently asked questions, related terms, references, and further readings.
In financial and accounting contexts, remittance refers to the act of sending a payment, which may be accompanied by a preprinted coupon or a remittance slip that provides critical details such as account number, date, and purpose of the payment.
A repurchase agreement, or repo, is a form of short-term borrowing for dealers in government securities. The dealer sells the government securities to investors, usually on an overnight basis, and buys them back the following day.
Return can have varied meanings in different contexts, including finance, investment, retailing, taxes, and trade. Generally, it refers to profits, exchanges, and refunds or credits, often associated with securities, merchandise, or taxpayer information.
The Reversionary Factor is a mathematical factor that indicates the present worth of one dollar to be received in the future. It is equivalent to the Present Value of 1.
Revolving Acceptance Facility by Tender (RAFT) is an underwritten facility provided by a bank to place sterling acceptance credits through a tender panel of eligible banks.
The term 'RICH' has various meanings in finance and everyday language, from denoting high-valued securities or interest rates to simply describing wealth.
The rate of return on an investment that has no risk. The return on US and UK Treasury bills is often regarded as a very close approximation to this rate. The risk-free rate is an important concept in the Capital Asset Pricing Model (CAPM).
Rollover refers to replacing a loan or debt with another or changing the institution that invests one's pension plan, without recognition of taxable income.
The Rule of 78s is a method for computing unearned interest used on installment loans with add-on interest. It distributes the interest charges in a way that results in higher interest expenses earlier in the loan term.
A sale represents an exchange of goods or services for money. The concept and details of a sale vary across fields such as finance, law, marketing, and securities trading.
Salvage value, also known as scrap value, is the estimated residual amount that an asset is expected to realize when it is sold at the end of its useful life.
A Samurai bond is a bond issued in Japan by a non-Japanese entity, denominated in Japanese yen. It enables foreign issuers to access the Japanese capital market.
A detailed explanation and examples concerning the term 'Sans Recours' or 'Without Recourse', often used in the world of finance and accounting to limit the liability of the seller.
A seasoned issue refers to securities that are typically from established companies, have gained a reputation for quality with the investing public, and enjoy a high level of liquidity in the secondary market.
A seasoned loan is a bond or mortgage on which several payments have been collected. These types of loans are considered lower risk and more marketable than newly issued loans.
A market for investors to buy and sell shares in new and developing companies. These markets provide companies with access to new sources of finance and are subject to fewer regulatory requirements compared to main markets.
A secured bond is a type of bond backed by some form of collateral such as a mortgage or other lien. The specifics of the security are detailed in the bond agreement, known as an indenture. Unlike secured bonds, debentures (unsecured bonds) are not backed by collateral.
Debt obligation, including bonds, that is guaranteed by the pledge of assets or other collateral.
Semi-monthly refers to an event or action that occurs twice each month. This term is often used in payroll and billing cycles.
Series bonds are a group of bonds issued at different times with different maturities but under the same indenture.
A service economy is an economic structure where the majority of activities and jobs are centered around services rather than manufacturing, agriculture, or extraction. In such economies, the service sector dominates, offering various non-tangible goods such as healthcare, information technology, education, finance, and entertainment.
Servicing generally refers to the regular maintenance and routine repairs to equipment. In finance, servicing encompasses the act of billing, collecting payments, and filing reports on a loan. This process is crucial for maintaining the operational and financial stability of both physical assets and financial instruments.
A short bond, also known as a short-term bond, refers to a bond with a short maturity period, generally meaning one year or less. These bonds are often classified as current liabilities under the accounting definition of short-term debt.
Simple interest is a quick and easy method for calculating the interest charge on a loan or the interest earned on an investment, based on the principal amount, interest rate, and the time period involved.
A specialist is an individual with extensive knowledge and expertise in a specific field or area. In the context of securities, a specialist is a member of a stock exchange responsible for maintaining a fair and orderly market in one or more securities.
The initial expenditure incurred in the setting up of an operation or project. The start-up costs may include the capital investment costs plus the initial revenue expenditure prior to the start of operations.
A statement can refer to a summary of financial transactions, a document showing the status of assets and liabilities, or an instruction in a computer program.
A detailed report outlining the resources, liabilities, and capital accounts of a bank or financial institution as well as a summary of the status of assets, liabilities, and equity of a person or business organization.
A detailed summary that outlines the changes in equity for a company over a financial period, reflecting the sources of funding and how funds have been utilized.
Static risk refers to risks with a constant level of uncertainty regarding the outcome or payoff. This type of risk is not influenced by market fluctuations or evolving factors and typically remains unchanged over time.
The term 'Street' is shorthand for Wall Street and broadly refers to the financial community in New York City and elsewhere.
Subjective goodwill of an enterprise is calculated by deducting its net tangible assets from the net present value of its estimated future cash flows.
Subordination refers to the process of establishing the priority of one claim or debt over another. It is commonly used in various fields including finance and real estate to manage the hierarchy of obligations and claims.
Surplus refers to any excess amount over what is needed, particularly in finance and corporate accounting. It denotes assets that remain after liabilities, debts, and capital stock have been deducted.
A syndicator is a person or organization responsible for selling investments in shares or units within a syndicate.
To speculate, usually with the knowledge that the investment is highly risky, often in the context of buying securities.
A tallyman is an individual who either supplies goods on credit to be paid for in installments or one who tallies or keeps a count of items, such as votes or cargo.
Target price refers to the projected price level of a financial security, as projected by an analyst or determined by an acquirer in various financial and business contexts.
Minimizing tax liabilities legally and by means of full disclosure to the tax authorities.
The specified domain on which a tax is levied, such as an individual's income for income tax, the estate of a deceased person for inheritance tax, and the profits of a company for corporation tax.
A Telegraphic Transfer, abbreviated as TT, is an electronic method of transferring funds utilized mainly in banking to move money quickly between bank accounts worldwide. This method became standard before today's more modern and efficient electronic transfer systems.
Telephone switching in the context of finance refers to the process of shifting assets from one mutual fund to another via a phone call. This can take place within the various types of funds (stock, bond, money market) of a single family of funds or across different families of funds.
Tenor refers to the duration of time that must elapse before a financial instrument such as a bill of exchange or promissory note becomes due for payment.
A type of bond for which the entire principal amount matures on a single date rather than in installments over multiple dates.
Terminal value (TV) is the estimated value of an investment at the end of a specified period, calculated using a given rate of interest. It represents the future worth of an initial investment assuming a specific growth rate.
A ticker tape traditionally referred to the paper output of a stock ticker machine, which showed stock symbols and prices but now generally refers to the digital displays providing real-time stock prices.
Transaction Costs refer to the various expenses incurred when making a transaction, beyond the actual price of the goods or services exchanged. These can include research, bargaining, and enforcement costs, among others.
A Transferable Loan Facility (TLF) allows a lender to transfer the rights of the loan to a third party without the need to inform the borrower, making it a flexible financial instrument.
Intermediate-term (one to 10 years) obligation of the U.S. government that bears interest paid by coupon. Treasury notes carry the highest domestic credit standing and have the lowest taxable yield available at equivalent maturity.
A trust certificate is a financial instrument issued to finance the purchase of railroad equipment. Under this arrangement, trustees hold the title to the equipment as security for the loan until the debt is fully repaid.
The unamortized bond discount represents the difference between a bond's face value (par value) and the proceeds received from the bond's sale by the issuing company, less the portion that has been amortized over time.
Underlying debt refers to outstanding financial obligations secured by collateral, typically used in real estate and securities contexts, involving senior debt or debt of municipal government entities with broader credit responsibility.
