What is Price Scissors? Price scissors is a term that refers to a sustained change in the terms of trade between different goods or classes of goods. Often this can involve a country’s drop in the price received for a developing economy’s agricultural exports, while its manufactured goods imports rise in price or remain relatively
What Is Price Sensitivity? Price sensitivity is the degree to which the price of a product affects consumers’ purchasing behaviors. Generally speaking, it’s how demand changes with the change in the cost of products. In economics, price sensitivity is commonly measured using the price elasticity of demand, or the measure of the change in demand
What Is Price Skimming? Price skimming is a product pricing strategy by which a firm charges the highest initial price that customers will pay and then lowers it over time. As the demand of the first customers is satisfied and competition enters the market, the firm lowers the price to attract another, more price-sensitive segment
What Is a Price Swap Derivative? A price swap derivative is a derivative transaction where one entity guarantees a fixed value for the total asset holdings of another entity over a specified period. Under this type of agreement, whenever the value of the secured assets declines, the counterparty must deliver securities or other collateral to
What Is the Price-to-Book (P/B) Ratio? Many investors use the price-to-book ratio (P/B ratio) to compare a firm’s market capitalization to its book value and locate undervalued companies. This ratio is calculated by dividing the company’s current stock price per share by its book value per share (BVPS). Key Takeaways The price-to-book (P/B) ratio measures the
What Is the Price to Free Cash Flow Ratio? Price to free cash flow (P/FCF) is an equity valuation metric that compares a company’s per-share market price to its free cash flow (FCF). This metric is very similar to the valuation metric of price to cash flow but is considered a more exact measure because it
What Is a Prepayment Penalty? A prepayment penalty is usually specified in a clause in a mortgage contract stating that a penalty will be assessed if the borrower significantly pays down or pays off the mortgage before term, usually within the first three years of committing to the loan. The penalty is sometimes based on
What Is Prepayment Risk? Prepayment risk is the risk involved with the premature return of principal on a fixed-income security. When debtors return part of the principal early, they do not have to make interest payments on that part of the principal. That means investors in associated fixed-income securities will not receive interest paid on
What Is a Prepetition Liability? When a company or individual files for bankruptcy, they must first list all their debts. These are called prepetition liabilities. Post-petition liability, on the other hand, is all the debt incurred after the bankruptcy case is logged. These two types of liabilities are often shown on the balance sheets of
What Is Pre-Qualification? The term pre-qualification refers to an estimate for credit given by a lender based on information provided by a borrower. Pre-qualifications are conditional and involve the lender reviewing a borrower’s creditworthiness before granting a pre-approval. Lenders generally use this as a marketing tactic for creditors seeking to obtain new customers, especially for
