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Active Management
The pursuit of investment returns in excess of a specified benchmark.
Active portfolio strategy
A strategy that uses available information and forecasting techniques to seek better performance than a buy and hold portfolio. Related: Passive portfolio strategy.
Active Return
Return relative to a benchmark. If a portfolio's return is 5%, and the benchmark's return is 3%, then the portfolio's active return is 2%.
Active Risk
The risk (annualized standard deviation) of the active return. Also called the tracking error.
Actual market
Used in context of general equities. Firm market. Antithesis of Subject market.
Actuals
The physical commodity underlying a futures contract. See Also: Cash commodity; Physical asset
ACU
See Also: Asian Currency Units
AD
The ISO 3166 country code for ANDORRA.
A-D
Advance-Decline, or measurement of the number of issues trading above their previous closing_price less the number trading below their previous closing prices over a particular period. As a technical measure of market breadth, the steepness of the AD line indicates whether a strong bull or bear market is under way.
Ad valorem tax
A type of tax calculated based on percentage of gross or stated value. For example, VAT.
ADB
See Also: Adjusted debit balance
ADB
See Also: Asian Development Bank
Additional bonds test
A test for ensuring that bond issuers can meet the debt service requirements of issuing any new additional bonds.
Additional hedge
A protection against fallout risk in the mortgage pipeline.
Adequacy of coverage
A test that measures the extent to which the value of an asset is protected from potential loss either through insurance or hedging.
Adjustable rate
Applies mainly to convertible_security. Refers to interest rate or dividend that is adjusted periodically, usually according to a standard market rate outside the control of the bank or savings_and_loan_association, such as that prevailing on Treasury bonds or notes. Typically, such issues have a set floor or ceiling, called caps and collars that limits the adjustment.
Adjustable-rate mortgage
A mortgage that features predetermined adjustments of the loan interest rate at regular intervals based on an established index. The interest rate is adjusted at each interval to a rate equivalent to the index value plus a predetermined spread, or margin, over the index, usually subject to per-interval and to life-of-loan interest rate and/or payment rate caps.
Adjustable-rate preferred stock
Publicly traded issues that may be collateralized by mortgages and MBS
Adjusted balance method
Method of calculating finance charges that uses the account balance remaining after adjusting for all transactions posted during the given billing period as its basis. Related: Average daily balance method, previous balance method, past due balance method.
Adjusted basis
Price from which to calculate and derive capital gains or losses upon sale of an asset. Account actions such as any stock splits that have occurred since the initial purchase must be accounted for.
Adjusted debit balance
The account balance for a margin account that is calculated by combining the balance owed to a broker with any outstanding balance in the special miscellaneous account, and any paper profits on short accounts.
Adjusted exercise price
Term used in options on Ginnie Mae (Government National Mortgage Association) contracts. The final exercise price of the option accounts for the coupon rates carried on Ginnie Mae mortgages. For example, if the standard GNMA mortgage has an 9% yield, the price of GNMA pools with 13% mortgages in them is altered so that the investor receives the same yield.
Adjusted gross income
Gross income less allowable adjustments, which is the income on which an individual is taxed by the federal government.
Adjusted present value
The net present value analysis of an asset if financed solely by equity (present value of cash_flow), plus the present value of any financing decisions (levered cash flows). In other words, the various tax_shield provided by the deductibility of interest and the benefits of other investment_tax_credit are calculated separately. This analysis is often used for highly leveraged transactions such as a leveraged buyout.
Adjustment bond
A bond issued in exchange for outstanding bonds when a corporation facing bankruptcy is recapitalized.
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