What Is a Real Interest Rate? A real interest rate is an interest rate that has been adjusted to remove the effects of inflation. Once adjusted, it reflects the real cost of funds to a borrower and the real yield to a lender or to an investor. A real interest rate reflects the rate of
What Is the Realization Multiple? The realization multiple is a private equity measurement that shows how much has been paid out to investors. The realization multiple measures the return that is realized from the investment. Private equity funds are unique in that they hold assets that are pulled together from all sorts of illiquid sources
What Is a Realized Loss? A realized loss is the loss that is recognized when assets are sold for a price lower than the original purchase price. Realized loss occurs when an asset that was purchased at a level referred to as cost or book value is then disbursed for a value below its book
What Is Realized Yield? Realized yield is the actual return earned during the holding period for an investment. It may include dividends, interest payments, and other cash distributions. The term “realized yield” can be applied to a bond sold before its maturity date or a dividend-paying security. Generally speaking, the realized yield on bonds includes
What Is Risk-Adjusted Return On Capital (RAROC)? Risk-adjusted return on capital (RAROC) is a modified return on investment (ROI) figure that takes elements of risk into account. In financial analysis, projects and investments with greater risk levels must be evaluated differently; RAROC thus accounts for changes in an investment’s profile by discounting risky cash flows
What Is the Ratable Accrual Method? The ratable accrual method is a formula for determining how much interest income was earned on an investment over a period of time and when within the period it was earned. It counts income as it’s accrued rather than paid and is mainly used for determining taxes owed on
What Is a Rate-and-Term Refinance? A rate-and-term refinance changes the interest rate, the term—or both the rate and the term—of an existing mortgage without advancing any new money. It is also known as a “no cash-out refinance.” This differs from a cash-out refinance, in which new money is advanced on the loan and the borrower
What Is a Rate Anticipation Swap? A rate anticipation swap is a bond trading strategy in which the trader exchanges the components of their bond portfolio in anticipation of expected interest rate movements. Key Takeaways Rate anticipation swaps consist of exchanging bonds so as to maximize or minimize their sensitivity to future interest rate movements.Rate
What Is a Rate-Improvement Mortgage? A rate-improvement mortgage is a variation of a fixed-rate mortgage contract. It includes a clause permitting a borrower a one-time option to reduce their home loan interest rate when interest rates drop below the initially-contracted rate. This type of mortgage is a good option for property buyers if interest rates
What Is Rate Level Risk? Rate level risk is the possibility that an interest-bearing asset will lose value if market interest rates increase above its coupon rate. Key Takeaways Rate level risk is the risk of an interest-bearing asset losing value in the case that market interest rates rise above its coupon rate.Interest rate risk
