Basis Points (bps) Definition & Example - InvestingAnswers
Oct 6, 2020 · A basis point is the smallest measure used in quoting yields on fixed income products. Basis points also pertain to interest rates. One basis point is equal to one one-hundredth of one percentage point (0.01%). Therefore, 100 …
Interest Rate Swap | Example & Meaning - InvestingAnswers
This is considered a basis swap. For this interest rate swap example, Company ABC has a loan with a floating interest rate indexed to the 1-month LIBOR, but it wants its rate indexed to the 6-month LIBOR. Instead of exchanging a fixed rate for a floating one, it exchanges one type of floating rate for another.
Credit Spread Definition & Example - InvestingAnswers
Aug 21, 2020 · A credit spread is typically quoted in basis points, where a basis point is 1/100th of 1%, or 0.0001. How Do Credit Spreads Work? When comparing the yield of a corporate bond to that of the perceived “risk free” U.S. Treasury in a vacuum, the higher the credit quality of the corporate bond, the narrower the spread will be.
Effective Duration Definition & Example - InvestingAnswers
Oct 6, 2020 · The formula for effective duration is: Effective Duration = (P- - P+ ) / [ (2)* (P0)* (Y+ - Y-)] For example, let's assume you purchase a Company XYZ bond at 100% of par. The bond currently has an 8% yield. If the bond price increases to 101.5 when yields fall 10 basis points and the price falls to 99.5 when yields rise by 10 basis points, then ...
Adjusted Basis Definition & Example - InvestingAnswers
Aug 12, 2020 · These events can cause an increase or decrease in the asset's total value. An asset's adjusted basis takes the base price of an asset and adjusts it for changes in value reflecting enhancements and or depreciation. For instance, a given asset purchased for $100 that is sold one year later after having experienced $10 in depreciation and $50 in ...
Net Cash Flow | Formula & Definition - InvestingAnswers
Apr 13, 2021 · Net Cash Flow Example #1. Company ABC is an established online retail company. The owner has contracted the services of an accountant who determines that the firm earned $10 million from operating activities, $500,000 from financing activities, and spent $3 million on investing activities.
Step-Up in Basis Definition & Example - InvestingAnswers
Sep 29, 2020 · Step-ups in basis matter because they reduce tax bills. For people who inherit investments, step-ups often mean they can sell those investments immediately and pay little or no income tax. In our example, this would mean that you would owe the $1,110 tax bill rather than the $375 tax bill. Understanding and calculating the value of a step-up in ...
Discount Rate Definition & Example - InvestingAnswers
Aug 21, 2020 · The discount rate is the rate charged at the Fed’s discount window for institutions to borrow from the Fed in order to meet short-term liquidity needs. The Fed Funds rate is typically 25 basis points (bps) lower than the discount rate. The Federal Reserve sets the discount rate and sets a target rate for the Fed funds rate, which is then ...
Cash Price Definition & Example - InvestingAnswers
Oct 1, 2019 · For example, if people believe that coffee will sell for $40 a pound in three months, the price of a futures contract for delivery of coffee in three months cannot be $100; it will be more like $40, though the price for storing the coffee helps determine the relationships between futures prices and cash prices.
12b-1 Fee Definition & Example - InvestingAnswers
Nov 2, 2020 · For example, let's assume you invest $1,000 in the XYZ Company Mutual fund, which returns 10% every year and has annual 12b-1 fees of 1%. After 10 years, you would have $23,457. However, if the fund's 12b-1 fees were only 0.10%, you would have $25,679 after 10 years--over $2,000 more. Although it is important to compare 12b-1 fees among funds ...