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Laddering is an investment strategy that calls for establishing a pattern of rolling maturity dates for a portfolio of fixed-income investments. Your portfolio might include intermediate-term bonds or certificates of deposit (CDs).
For example, instead of buying one $15,000 CD with a three-year term, you buy three $5,000 CDs maturing one year apart. As each CD comes due, you can reinvest the principal to extend the pattern.
Or, you could use the money for a preplanned purchase, have it available to take advantage of a new investment opportunity, or use it to cover unexpected expenses.
You can use laddering to pay for college expenses, with a series of zero coupon bonds coming due over four years, in time to pay tuition each year.
And if you ladder, you can avoid having to liquidate a large bond investment if you need just some of the money or reinvest your entire principal at a time when interest rates may be low.
- Browse Related Terms: Barbell strategy, bond, Bond swap, Buy-and-hold, Collateralized mortgage obligation (CMO), Fixed-income investment, Intermediate-term bond, Laddering, Market risk, Note, Reinvestment risk, Systematic risk, term, Tranche
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A lapse causes a policy, right, or privilege to end because the person or institution that would benefit fails to live up to its terms or meet its conditions.
For example, if you have a subscription right to buy additional shares of a stock at a price below the public offering price, you must generally act before a certain date. If that date passes, your right is said to lapse.
Similarly, if you have a life insurance policy that requires you to pay annual premiums, the policy will lapse and you'll no longer be covered if you fail to pay.
- Browse Related Terms: Annual renewable term insurance, Cash value, Convertible term, Council of Economic Advisors (CEA), Elimination period, Guaranteed renewable policy, Lapse, Level term insurance, Life insurance, Nonforfeiture clause, Own-occupation policy, Paid-up policy, Premium, Renewable term, Term insurance, Variable Life Insurance, Waiver of premium
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The stock of companies with market capitalizations of $10 billion or more is known as large-cap stock. Market capitalization is figured by multiplying the number of either the outstanding or the floating shares by the current share price.
Large-cap stock is generally considered less volatile than stock in smaller companies, in part because the bigger companies may have larger reserves to carry them through economic downturns.
However, market capitalization is always in flux. Today's large-cap stock can drop out of that category if the share price plunges either in a general market downturn or as a result of internal problems.
And the opposite is true as well. Many of the country's largest companies began life as start-ups.
- Browse Related Terms: Large-capitalization (large-cap) stock, Market capitalization, Micro-cap stock, Mid-capitalization (mid-cap) stock, Small-capitalization stock, Universe, volatility
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The last trading day is the final day on which an order to buy or sell an options contract or futures contract can be executed.
In the case of an options contract, for example, the last trading day is usually the Friday before the third Saturday of the month in which the option expires, though a brokerage firm may set an earlier deadline for receiving orders.
If you don't act on an option you own before the final trading day, the option may simply expire, or if it is in-the-money it may be automatically executed on your behalf by your brokerage firm or the Options Clearing Corporation (OCC) unless you request that it not be.
But if a futures contract isn't offset, the contract seller is obligated to deliver the physical commodity or cash settlement to the contract buyer.
- Browse Related Terms: American-style option, Base Price, Dealer Sticker Price, European style option, Expiration cycle, Expiration date, Last trading day, Long-term equity anticipation securities (LEAPS), Options class, Options series, Quadruple witching day
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The fee charged for delinquent payment on an installment loan, usually expressed as a percentage of the loan balance or payment. Also, a penalty imposed by a card issuer against a cardholder's account for failing to make minimum payments.
- Browse Related Terms: amortization, Asset-backed bond, Credit card account agreement, Date of maturity, Debt-to-income ratio (DTI), Deferred payment, Delinquency, Honorarium, Late Charge, Maturity Date, Payment Due Date, Prepayment, Self-amortizing loan
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A late payment is your failure to make at least the minimum payment so that it reaches us by or before the time and due date on your bill.
- Browse Related Terms: Bill, Billing period, Due date, Fixed-rate APR, Grace Period, index, Late payment, Minimum interest charge, Minimum Payment, Variable-rate APR
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A fee charged if your payment is received after the due date.
- Browse Related Terms: Annual fee, application fee, Authorized charge, Credit-limit-increase fee, Late-payment fee, Over-the-limit fee, Penalty fees, Protected balances, Returned payment, Set-up fee, Workout arrangement
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When a company wants to raise capital by selling securities to investors, it partners with an investment bank, known as the lead underwriter.
That bank has the primary responsibility for organizing and managing an initial public offering (IPO), a secondary stock offering, or a bond offering.
In the case of an IPO, the lead underwriter agrees to buy all the shares from the company and helps it determine an initial offering price for the security, create a prospectus, and organize a syndicate of other investment banks to help sell the securities to investors.
In return for assuming the financial risk of the IPO, the lead underwriter receives a fee, which is usually a percentage of each share price of the IPO.
- Browse Related Terms: Capital, Capital markets, Initial public offering (IPO), Investment bank, Issuer, Lead underwriter, Private placement, Red herring, Syndicate, Underwriter, Underwriting
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A lease is a legal agreement that provides for the use of something - typically real estate or equipment - in exchange for payment.
Once a lease is signed, its terms, such as the rent, cannot be changed unless both parties agree. A lease is usually legally binding, which means you are held to its terms until it expires. If you break a lease, you could be held liable in court.
A contract transferring the use of property or occupancy of land, space, structures, or equipment in consideration of a payment (e.g., rent).
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An individual, financial institution, or other entity that lends money with the expectation that the money will be returned with interest.
- Browse Related Terms: Audit, Banking day, Consumer Reporting Agency, Correspondent, custodian, Direct Dispute, Financial Accounting Standards Board (FASB), Gift, Lender, Remittance Transfers, Safe (or Safety) Deposit Box
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insurance placed on a home or property by a lender to protect their interest in the collateral which secures the loan.
Departments of the Treasury & Housing and Urban Development, Making Home Affordable Program - Cite This Source - This Definition- Browse Related Terms: First Mortgage, Guarantee, Hazard Insurance, Lender-Placed Insurance, Lien, mortgage, Mortgage Insurance (MI), second mortgage, Suspension
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Some load mutual funds impose a recurring sales charge, called a level load, each year you own the fund rather than a sales charge to buy or sell shares.
The level-load rate is generally lower than the sales charge for front- or back-end loads. But the annual asset-based management fee on these funds is higher than for front-load funds.
This means the total amount you pay over time with a level load can be substantially more than a one-time sales charge, especially if you own the fund for a number of years.
If a fund company offers you a choice of the way you prefer to pay the load, level-load funds are generally identified as Class C shares. Front-end loads are Class A shares and back-end loads are Class B shares.
- Browse Related Terms: 12b-1 fee, Back-end load, breakpoint, Contingent deferred sales load, front-end load, Fund network, Level load, load, Load fund, Mutual Fund, No-load mutual fund, Redemption fee, Sales charge, Share class, Surrender fee
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With a level term life insurance policy, your annual premium remains the same for the term, which may be as long as 10 or 20 years.
The death benefit also remains the same. If the policy is guaranteed renewable, you can extend coverage for an additional term without having to qualify again, though the annual premium will increase because you're older.
Although the cost of insurance in the first few years will probably be higher for a level term than an increasing term policy, the total cost of a level term with the same benefit is usually less. As with all term policies, you don't build up a cash reserve and your coverage ends at the end of the term or at any time you stop making payments.
- Browse Related Terms: Annual renewable term insurance, Cash value, Convertible term, Council of Economic Advisors (CEA), Elimination period, Guaranteed renewable policy, Lapse, Level term insurance, Life insurance, Nonforfeiture clause, Own-occupation policy, Paid-up policy, Premium, Renewable term, Term insurance, Variable Life Insurance, Waiver of premium
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A level yield curve results when the interest rate on short-term US Treasury issues is essentially the same as the rate on long-term Treasury bonds.
You create the curve by plotting a graph with rate on the vertical axis and maturity date on the horizontal axis and connecting the dots.
In most periods, the rate on long-term bonds is higher and the yield curve is positive because investors demand more for tying up their money for a longer period.
There are also times, when interest rates seems to be on the upswing, that the pattern is reversed and the yield curve is negative, or inverted.
- Browse Related Terms: Level yield curve, Leveraged buyout, Negative yield curve, Positive yield curve, Variable rate, Yield Curve
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Leverage is an investment technique in which you use a small amount of your own money to make an investment of much larger value. In that way, leverage gives you significant financial power.
For example, if you borrow 90% of the cost of a home, you are using the leverage to buy a much more expensive property than you could have afforded by paying cash.
If you sell the property for more than you borrowed, the profit is entirely yours. The reverse is also true. If you sell at a loss, the amount you borrowed is still due and the entire loss is yours.
Buying stock on margin is a type of leverage, as is buying a futures or options contract.
Leveraging can be risky if the underlying instrument doesn't perform as you anticipate. At the very least, you may lose your investment principal plus any money you borrowed to make the purchase.
With some leveraged investments, you could be responsible for even larger losses if the value of the underlying product drops significantly.
- Browse Related Terms: Bear spread, Bull spread, Delta, Exercise price, Hedging, Index option, Leverage, Options chain, Out-of-the-money, Straddle, Strangle, Underlying instrument, Underwater
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A leveraged buyout occurs when a group of investors using borrowed money, often raised with high yield bonds or other kinds of debt, takes control of a company.
These buyouts are usually hostile takeovers, and if they are successful, the investors will usually start to sell off assets to pay down the substantial debt they have incurred.
- Browse Related Terms: Level yield curve, Leveraged buyout, Negative yield curve, Positive yield curve, Variable rate, Yield Curve
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In personal finance, liabilities are the amounts you owe to creditors, or the people and organizations that lend you money. Typical liabilities include your mortgage, car and educational loans, and credit card debt.
When you figure your net worth, you subtract your liabilities, or what you owe, from your assets. The result is your net worth, or the cash value of what you own.
In business, liabilities refer to money a company owes its creditors and any claims against its assets.
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Responsible or answerable by law; legally obligated.
State of Maine, Department of Professional and Financial Regulation - Cite This Source - This Definition- Browse Related Terms: Appraisal, Credit Bureaus, Credit Reports, Credit score, Divorce Decree, Fair Collection Practices Act, Fair Credit Reporting Act (FCRA), Home Equity Loan, Liable, MCCC-1, Mortgage Company (Supervised Lender), Supervised Lender
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Legal claim against a property. Once the property is sold, the lien holder is then paid the amount that is owed.
A lien is a document that shows you owe money to a lender on a particular vehicle or other asset, such as real estate, that has been used as collateral on a loan.
An asset on which there's a lien can't be sold until the lienholder has been repaid. When you own an asset on which there's a lien, you risk having it repossessed if you default and don't make the required payments in full and on time.
- Browse Related Terms: Closing a mortgage loan, Down Payment, First Mortgage, General Agreement on Tariffs and Trade (GATT), Lease, Lien, mortgage, Release of Lien
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the lender’s right to claim the homeowner’s property in the event the homeowner defaults. If there is more than one lien, the claim of the lender holding the first lien will be satisfied before the claim of the lender holding the second lien, which in turn will be satisfied before the claim of a lender holding a third lien, etc.
Departments of the Treasury & Housing and Urban Development, Making Home Affordable Program - Cite This Source - This Definition- Browse Related Terms: First Mortgage, Guarantee, Hazard Insurance, Lender-Placed Insurance, Lien, mortgage, Mortgage Insurance (MI), second mortgage, Suspension
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For HMDA reporting purposes, lenders are required to report lien status for loans they originate and applications that do not result in originations (Codes 1 through 3 are used for these loans; Code 4 is used for purchased loans). Lien status is determined by reference to the best information readily available to the lender at the time final action is taken and to the lender's own procedures. Lien status aids in the interpretation of price data. For more information on lien status, see the HMDA Price Data Frequently Asked Questions (FAQs) section of the following link: http://www.federalreserve.gov/boarddocs/press/bcreg/2006/20060403/attachment.pdf
- Browse Related Terms: Action Taken Date, Action Taken Type, Applicant Ethnicity, Applicant Race, Applicant Sex, Application Received Date, Co-applicant Ethnicity, Co-applicant Race, Co-applicant Sex, Good Faith Estimate (GFE), Gross Annual Income, Lien Status, Loan Application Number, Loan Application Register (LAR), Panel - HMDA Reporter Panel Listing, Reasons for Denial, Respondent Name, Transmittal Sheet (TS), Type of Purchaser