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Interest Option |
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Definition of Interest OptionInterest OptionOne of several investment accounts in which your premiums may be invested within your life insurance policy.
Related Terms:Account ValueThe sum of all the interest options in your policy, including interest. fractional interest discountthe combined discounts for lack of control and marketability. g the constant growth rate in cash flows or net income used in the ADF, Gordon model, or present value factor. Abandonment optionThe option of terminating an investment earlier than originally planned. Accrued interestThe accumulated coupon interest earned but not yet paid to the seller of a bond by the American optionAn option that may be exercised at any time up to and including the expiration date. 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 Arbitrage-free option-pricing modelsYield curve option-pricing models. Asian optionoption based on the average price of the asset during the life of the option. 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. 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 Best-interests-of-creditors testThe requirement that a claim holder voting against a plan of reorganization 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 Call an optionTo exercise a call option. Call optionAn option contract that gives its holder the right (but not the obligation) to purchase a specified Capitalized interestinterest that is not immediately expensed, but rather is considered as an asset and is then Cash flow after interest and taxesNet income plus depreciation. Compound interestinterest paid on previously earned interest as well as on the principal. Compound optionoption on an option. Covered interest arbitrageA portfolio manager invests dollars in an instrument denominated in a foreign Covered or hedge option strategiesStrategies that involve a position in an option as well as a position in the Currency optionAn option to buy or sell a foreign currency. Dealer optionsOver-the-counter options, such as those offered by government and mortgage-backed Delivery optionsThe options available to the seller of an interest rate futures contract, including the quality Doubling optionA sinking fund provision that may allow repurchase of twice the required number of bonds Down-and-in optionBarrier option that comes into existence if asset price hits a barrier. Down-and-out optionBarrier option that expires if asset price hits a barrier. Earnings before interest and taxes (EBIT)A financial measure defined as revenues less cost of goods sold Effective annual interest rateAn annual measure of the time value of money that fully reflects the effects of Elasticity of an optionPercentage change in the value of an option given a 1% change in the value of the Embedded optionAn option that is part of the structure of a bond that provides either the bondholder or Equilibrium rate of interestThe interest rate that clears the market. Also called the market-clearing interest Equity optionsSecurities that give the holder the right to buy or sell a specified number of shares of stock, at European optionoption that may be exercised only at the expiration date. Related: american option. European-style optionAn option contract that can only be exercised on the expiration date. Exercising the optionThe act buying or selling the underlying asset via the option contract. Foreign currency optionAn option that conveys the right to buy or sell a specified amount of foreign Forward interest rateinterest rate fixed today on a loan to be made at some future date. Futures optionAn option on a futures contract. Related: options on physicals. Garmen-Kohlhagen option pricing modelA widely used model for pricing foreign currency options. Greenshoe optionoption that allows the underwriter for a new issue to buy and resell additional shares. Gross interestinterest earned before taxes are deducted. Index and Option Market (IOM)A division of the CME established in 1982 for trading stock index Index optionA call or put option based on a stock market index. InterestThe price paid for borrowing money. It is expressed as a percentage rate over a period of time and Interest coverage ratioThe ratio of the earnings before interest and taxes to the annual interest expense. This Interest coverage testA debt limitation that prohibits the issuance of additional long-term debt if the issuer's Interest equalization taxTax on foreign investment by residents of the U.S. which was abolished in 1974. Interest paymentsContractual debt payments based on the coupon rate of interest and the principal amount. Interest on interestinterest earned on reinvestment of each interest payment on money invested. Interest-only strip (IO)A security based solely on the interest payments form a pool of mortgages, Treasury Interest rate agreementAn agreement whereby one party, for an upfront premium, agrees to compensate the Interest rate capAlso called an interest rate ceiling, an interest rate agreement in which payments are made Interest rate ceilingRelated: interest rate cap. Interest rate floorAn interest rate agreement in which payments are made when the reference rate falls Interest rate on debtThe firm's cost of debt capital. Interest rate parity theoreminterest rate differential between two countries is equal to the difference Interest rate riskThe risk that a security's value changes due to a change in interest rates. For example, a Interest rate swapA binding agreement between counterparties to exchange periodic interest payments on Interest subsidyA firm's deduction of the interest payments on its debt from its earnings before it calculates Interest tax shieldThe reduction in income taxes that results from the tax-deductibility of interest payments. Intrinsic value of an optionThe amount by which an option is in-the-money. An option which is not in-themoney Irrational call optionThe implied call imbedded in the MBS. Identified as irrational because the call is Liquid yield option note (LYON)Zero-coupon, callable, putable, convertible bond invented by Merrill Lookback optionAn option that allows the buyer to choose as the option strike price any price of the Liquid yield option note (LYON)Zero-coupon, callable, putable, convertible bond invented by Merrill Lynch & Co. Margin requirement (Options)The amount of cash an uncovered (naked) option writer is required to Multi-option financing facilityA syndicated confirmed credit line with attached options. Naked option strategiesAn unhedged strategy making exclusive use of one of the following: Long call Nominal interest rateThe interest rate unadjusted for inflation. Open interestThe total number of derivative contracts traded that not yet been liquidated either by an OptionGives the buyer the right, but not the obligation, to buy or sell an asset at a set price on or before a Option elasticityThe percentage increase in an option's value given a 1% change in the value of the Option not to deliverIn the mortgage pipeline, an additional hedge placed in tandem with the forward or Option premiumThe option price. Option priceAlso called the option premium, the price paid by the buyer of the options contract for the right Option sellerAlso called the option writer , the party who grants a right to trade a security at a given price in Option writeroption seller. Option-adjusted spread (OAS)1) The spread over an issuer's spot rate curve, developed as a measure of Options contractA contract that, in exchange for the option price, gives the option buyer the right, but not Options contract multipleA constant, set at $100, which when multiplied by the cash index value gives the Options on physicalsinterest rate options written on fixed-income securities, as opposed to those written on Out-of-the-money optionA call option is out-of-the-money if the strike price is greater than the market price Path dependent optionAn option whose value depends on the sequence of prices of the underlying asset Pooling of interestsAn accounting method for reporting acquisitions accomplished through the use of equity. Postponement optionThe option of postponing a project without eliminating the possibility of undertaking it. Put an optionTo exercise a put option. Put optionThis security gives investors the right to sell (or put) fixed number of shares at a fixed price within Quality optionAlso called the swap option, the seller's choice of deliverables in Treasury Bond and Treasury Rate of interestThe rate, as a proportion of the principal, at which interest is computed. Real interest rateThe rate of interest excluding the effect of inflation; that is, the rate that is earned in terms Short interestThis is the total number of shares of a security that investors have borrowed, then sold in the Simple interestinterest calculated only on the initial investment. Related:compound interest. Split-fee optionAn option on an option. The buyer generally executes the split fee with first an initial fee, Spot interest rateinterest rate fixed today on a loan that is made today. Related: forward interest rates. 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