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What Is the Prime Rate? The term prime rate refers to the interest rate that commercial banks charge their most creditworthy customers. The Federal Reserve (Fed) sets the federal funds overnight rate which serves as the basis for the prime rate, which is the starting point for other interest rates. The prime rate (sometimes referred

What Is Principal? Principal is most commonly used to refer to the original sum of money borrowed in a loan or put into an investment. It can also refer to the face value of a bond, the owner of a private company, or the chief participant in a transaction. Key Takeaways The term “principal” has

What Is the Principal-Agent Problem? The principal-agent problem is a conflict in priorities between a person or group and the representative authorized to act on their behalf. An agent may act in a way that is contrary to the best interests of the principal. The principal-agent problem is as varied as the possible roles of

What Is the Principal-Agent Relationship? The principal-agent relationship is an arrangement in which one entity legally appoints another to act on its behalf. In a principal-agent relationship, the agent acts on behalf of the principal and should not have a conflict of interest in carrying out the act. The relationship between the principal and the

What Is a Principal Exchange Rate Linked Security (PERL)? A principal exchange rate linked security (PERL) is a type of investment in debt that pays interest semiannually and has a yield that is linked to foreign exchange rates. That is, the principal repayment amount is determined by the exchange rate of a certain currency in

What Is a Principal Order? The term principal order refers to an order in which a broker-dealer buys or sells for its own account as opposed to carrying out trades for the brokerage’s clients. Principal orders are done at the broker-dealer’s own risk. The broker-dealer must provide notification to the exchange where the trade. These

What Is a Principal Private Residence (Canada)? A principal private residence is a home a Canadian taxpayer or family maintains as its primary residence. A family unit can only have one principal private residence at any given time. In order to qualify, the property must be owned by the taxpayer or couple, or fall inside a

What Is a Principal Reduction? A principal reduction is a decrease in the amount owed on a loan, typically a mortgage. A lender may grant a principal reduction to provide financial relief for a borrower as an alternative to foreclosure on the property. Key Takeaways A principal reduction reduces the amount owed on a mortgage

What Is a Principal Residence? A principal residence is the primary location that a person inhabits. It is also referred to as a primary residence or main residence. It does not matter whether it is a house, apartment, trailer, or boat, as long as it is where an individual, couple, or family lives most of

What Is Prior Probability? Prior probability, in Bayesian statistics, is the probability of an event before new data is collected. This is the best rational assessment of the probability of an outcome based on the current knowledge before an experiment is performed. Prior probability can be compared with posterior probability. Key Takeaways A prior probability