In return, the borrower or issuer typically pays investors interest over the life of the bond and returns the principal (original amount invested) to the bondholder on the bond’s maturity date. Sometimes, a bond can be structured so that the issuer can redeem the bond early or before its maturity. Call Premium For securities that can be called, such as bonds, the call premium is the money you receive when a bond is redeemed early by the issuing party....
Let’s take a closer look at what a compensating balance is and how it works, so you can understand how it may apply to your situation. Definition and Example of a Compensating Balance The balance you agree to maintain with a lender as a borrower is known as a compensating balance. It’s intended to reduce the cost of lending for the lender because it allows them to invest the cash in the compensating balance account and keep all or a portion of the proceeds....
Let’s explore what credit unions are, the services they provide, and how credit unions work, as well as the types of credit unions, membership requirements, and how they compare to other financial institutions such as community banks. Definition and Example of Credit Unions A credit union is a not-for-profit financial institution co-owned by its members. A credit union’s members elect a volunteer board of directors to help manage the credit union....
Whether you’ll encounter a defeasance clause in your mortgage depends on the state you live in, but these clauses are rooted in a key question: Who owns the home at the time your mortgage loan closes: you or your lender? The answer can be very relevant if you ever find yourself unable to make your mortgage payments and facing foreclosure. Definition and Examples of Defeasance Clauses A defeasance clause states that the title to a mortgaged property in the loan agreement is dependent on the borrower paying off the mortgage loan completely....
As a consumer, you most likely understand that an expense is a cost you pay for products and services that you buy or use every day. Some expenses are fixed—payments you make regularly that stay the same from month to month, like rent or car payments—and others are flexible, meaning the total cost of these expenses changes regularly. Alternate names: Variable expense, controllable expense A few examples of flexible expenses include what you pay for monthly groceries, clothing, and transportation, as the total cost of all of these things will most likely vary....
For example, if the US dollar-to-euro (USD/EUR) exchange rate is currently 0.8827 (aka the spot rate), and the calculated forward rate is 0.8885, a forward premium exists. Why? Because the spot rate for the USD/EUR is 0.8827 and the forward rate for the same currency pair is 0.8885, which is higher than the spot rate. How Does a Forward Premium in Forex Trading Work? In a forward contract, you settle on a price to pay now to acquire the underlying asset at a future date....
Automobile leasing companies use a complex set of factors to determine the cost of lease payments. While you can negotiate to reduce your auto payments, a one-pay lease offers even greater savings. One-Pay Lease Definition and Example With a one-pay lease, you make a single lump-sum payment upfront, and no additional payments during the lease period for your vehicle. Dealers often offer a more favorable rate to customers who choose a one-pay lease....
The P/E ratio is also a metric used to help compare stocks in the same industry to one another. It is not as useful when comparing stocks across different industries or those that produce different products and services. For example, the hospital and healthcare sector had a P/E ratio of 20.77 in January 2022, while the software internet sector had a P/E ratio of 83.97. How to Calculate a P/E Ratio A P/E ratio is the price (P) divided by earnings (E)....
If you’re looking to land the best rate out there, a promotional or bonus CD rate may grab your attention. Watch out for fine print that could sour the deal. Definition and Example of Promotional (Bonus) CD Rate A promotional (bonus) CD rate is a higher rate offered on specific CDs, often with certain terms the borrower must meet. The higher rate may be offered when you make a higher deposit, purchase a CD with a longer term, or you’re already a bank customer....
REOCs can have other business segments but their main business is real estate. They find distressed properties or develop new ones to sell or manage if the price is right. Another example of a U.S.-based REOC is Howard Hughes Corp. Howard Hughes Corp was spun off from REIT mall operator General Growth Properties in 2010. As a REOC, Howard Hughes does not derive most of its revenue from owning and leasing real estate as a lot of REITs do....
Alternate name: Securities lending fee Stock loan fees are often used to facilitate short selling. With short selling, an investor bets that the price of a stock will decline. To do so, they first need to borrow shares and pay a stock loan fee to the lender. The short seller then sells these borrowed shares with the intention of eventually buying the shares back at a lower price. The short seller then returns the purchased shares back to the lender and keeps the difference as profit....
A take-profit order is a short-term trading strategy. It is useful for day traders who want to take advantage of a quick rise in the cost of securities to make an immediate profit. It is a type of limit order, though limit orders can be used to either buy securities at a low price or sell them at a high price. Alternate names: Take-profit order, limit order, sell limit orderAcronym: T/P order...
Learn more about the throwback rule, how it works, and its pros and cons. Definition and Examples of a Throwback Rule States can adopt the “throwback rule” to ensure that corporations pay taxes on 100% of their sales, including destination states in which that corporation does not have a physical nexus. Examples of a nexus include an office or warehouse with delivery trucks. Ordinarily, sales in destination states in which the business has no nexus are not subject to taxes....
While some unicorns operate under the radar for the typical consumer, others have become household names. Companies including Stripe, SpaceX, Instacart, Canva, Chime, and Robinhood are among the largest unicorn companies today. How Do Unicorns Work? Most unicorns start as small startups, just like virtually every other company in the world. Each startup has to raise capital to succeed and eventually raise more capital. Unicorns tend to see early success with customer growth or revenue and attract outside investments from major venture capital funds....
Purchases made with a virtual credit card number are still applied to your credit card balance as though you used your actual credit card. The virtual credit card number can be used one time only or for purchases that happen regularly. Learn how they work, the pros and cons, and where you can get a virtual credit card number. What Are Virtual Credit Card Numbers? Virtual credit card numbers are card numbers that you can use when shopping online....
Alternate name: Card authorization, pre-authorization hold, preauth For example, let’s say you have a credit card with a $10,000 credit limit and an available balance of $9,000. You go to the store to make a $100 purchase. As your card is swiped, the merchant transmits the amount of this transaction to your credit card issuer, which places an authorization hold on your account of $100, thereby reducing your available credit limit by $100 to $8,900....
Unlike variable payment plans, which give borrowers the freedom to make payments whenever they’d like depending on their financial situations, EMIs have a clearly laid out repayment schedule and term to maturity. An equated monthly installment is ideal if you’d like to budget for your loan and know exactly what you’ll pay upfront. Acronym: EMI Alternate name: Installment loans How EMI Works An EMI involves both principal and interest, as well as a loan’s term....
An open interview is a chance to meet with a hiring manager without having to go through a formal screening and selection process prior to being chosen for an interview. However, you may have to wait to meet with an interviewer, and there may be other candidates interviewing for the same job you are. Learn how open job interviews work, how to prepare, what to bring, and how to ace a walk-in job interview....
Potential output is the output an economy can sustainably produce given the available amount of resources such as workers, technology, and equipment. The NRU is the lowest level of unemployment an economy can have without creating inflation. It is also called “full employment” and it is considered to be between 4% and 6% in the U.S. An overheated economy is one in which the economy is growing beyond a sustainable rate....
Bad credit is usually indicated by a low credit score, the numerical summary of the information in your credit report. FICO scores are one of the most widely used credit scores. They range from 300 to 850, with higher scores being more desirable. The FICO credit score range is broken up into five ratings: Exceptional: 800 and aboveVery Good: 740-799Good: 670-739Fair: 580-669Poor: Below 580 How Bad Credit Works Your credit score is based on five factors....
