What is an Amortizing Loan? An amortizing loan (or amortized loan) is a type of loan that comes with periodic, scheduled payments of both the principal and interest amount. With amortized loans, borrowers need to repay the interest expense for the period. After that, they must pay an additional amount …

There are various ratios that lenders use to determine whether they should provide finance to a lender. They do so by evaluating the risk they take on providing the loan. Among these metrics, the Loan-to-Value (LTV) ratio is prevalent for mortgages. Most lenders in the home loans market use this …

What is Net Present Value? Net Present Value (NPV) represents the difference between the present value of cash flows and the present value of cash outflows for a project or investment. NPV is a common technique used in capital budgeting and investment planning. Entities use NPV to determine whether a …

What is Accrued Interest? Accrued interest is an accounting concept that represents the interest incurred on a financial obligation at a specific date. However, it is the interest that has not been paid or received at the time of reporting. Accrued interest is a concept that comes as a result …

A bond is a debt instrument that usually comes with fixed-rate income. They are a prevalent type of finance for most entities, whether for corporations, governments, municipalities, etc. They are also a common type of investment for risk-averse investors. Bonds have several characteristics that define their behaviour. One of those …

What is a Repurchase Agreement? A repurchase agreement (or repo for short) is a type of short-term borrowing for dealers who deal in government securities. Within this agreement, the dealer sells government securities to investors. Once sold, they repurchase the securities at a higher price. This transaction takes place within …

What is a Certificate of Deposit? A certificate of deposit (CD) represents a financial product issued by financial institutions, such as banks. CDs allow customers to earn a specific level of interest on their investment. However, these customers cannot access their funds for a specific period. In case they want …

We have discussed various fixed-income instruments such as interest rate swaps, bonds. In this article, we’re going to talk about commercial papers and compare them to traditional instruments. For traditional businesses, the primary source of debt finance was financial institutions. However, with modern corporations, conventional methods changed. While companies still …

When it comes to raising finance, companies have several options. These may include equity or debt finance. Similarly, within each of these categories, companies have various possibilities. Which one of these sources companies use depends on their preferences and capital structures. Likewise, companies may decide on the source depending on …

What are Pension Funds? Pension funds represent investment pools that pay for employees’ retirements. These pension funds come directly under pension plans. Pension plans and funds are most common in companies and governments. These entities may pay for their workers’ retirement funds and collect these funds under a pension plan. …