What is Capitalization Rate? Capitalization rate (or simply Cap Rate) refers to the rate of return used for real estate valuation. Cap rate is the rate of return that investors can expect to generate on a real estate investment property. This rate uses the net income generated through properties and …

When it comes to investing, investors have various options. Most commonly, investors prefer to invest in stocks or debt instruments. However, these investments do not represent a truly diversified portfolio of investments. Therefore, investors use techniques, such as asset allocation, to include other asset classes in their investment portfolios. One …

Investors often face the difficult decision of choosing between investing in commercial real estate vs residential real estate. Each of these investments has its own benefits and drawbacks. There are some differences between both of these that investors must understand. Before that, however, investors must understand what constitutes real estate …

A derivative is a financial instrument that derives its value from an underlying asset or group of assets. This derivative usually comes in the form of a contract between two parties. Any movements in the underlying asset’s value cause a fluctuation in the derivative’s value as well. Derivatives may have …

For investors involved in the bond or debt market, interest rate fluctuations can be critical. Usually, an increase or decrease in interest rates can affect the underlying security’s prices. It also constitutes the interest rate risk that investors face during their transactions. On top of that, interest rate risk is …

What is a Forward Rate Agreement (FRA)? Forward rate agreements are customized over-the-counter financial contracts. Through these agreements, two parties can predefine the interest rates for contracts that will commence in the future. One of these counterparties includes a buyer that borrows a principal amount at a fixed interest rate. …

Credit risk is the risk associated with defaults from borrowers. In any debt transaction, the lender has to bear some credit risk associated with providing the loan. This risk depends on several factors, such as the borrower’s past financial background, current earnings, security provided, etc. In case a borrower defaults …

Who is a Credit Analyst? A credit analyst is someone responsible for evaluating the risk factors that affect loans and debts. Credit analysts are trained individuals who have a financial background in examining loan applications. They are different from loan officers who assist clients throughout the loan process. Instead, credit …

The term risk represents any chance or uncertainty that an outcome will differ from the expected outcome. Usually, any scenario that consists of uncertain possibilities that can result in losses constitutes the risk for that scenario. There are various types of uncertainties that investors can face according to their active …

In the past, it was challenging for lenders to assess a borrower’s creditworthiness, which resulted in high credit risks. However, things have changed since that time. It is common practice for most lenders to check a borrower’s creditworthiness through credit ratings. These credit ratings usually come from agencies known as …