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The recovery rate is defined as 1 minus the LGD, the share of an asset that is recovered when a borrower defaults. [ 1 ] Loss given default is facility-specific because such losses are generally understood to be influenced by key transaction characteristics such as the presence of collateral and the degree of subordination.
The weighted average return on assets, or WARA, is the collective rates of return on the various types of tangible and intangible assets of a company. The presumption of a WARA is that each class of a company's asset base (such as manufacturing equipment, contracts, software, brand names, etc.) carries its own rate of return, each unique to the ...
The rate of return on a portfolio can be calculated indirectly as the weighted average rate of return on the various assets within the portfolio. [3] The weights are proportional to the value of the assets within the portfolio, to take into account what portion of the portfolio each individual return represents in calculating the contribution of that asset to the return on the portfolio.
This is a return of US$20,000 divided by US$100,000, which equals 20 percent. The US$20,000 is paid in 5 irregularly-timed installments of US$4,000, with no reinvestment, over a 5-year period, and with no information provided about the timing of the installments. The rate of return is 4,000 / 100,000 = 4% per year.
For banking, a loss ratio is the total amount of unrecoverable debt when compared to total outstanding debt. For example, if $100 was loaned, but only $90 was repaid, the bank has a loss ratio of 10%. These calculations are applied class-wide and used to determine financing fees for loans. If the average loss ratio on a class of loans is 2% ...
Probability of default (PD) is a financial term describing the likelihood of a default over a particular time horizon. It provides an estimate of the likelihood that a borrower will be unable to meet its debt obligations. [1][2] PD is used in a variety of credit analyses and risk management frameworks. Under Basel II, it is a key parameter used ...
In finance, the weighted-average life (WAL) of an amortizing loan or amortizing bond, also called average life, [1][2][3] is the weighted average of the times of the principal repayments: it's the average time until a dollar of principal is repaid. In a formula, [4] where: is the time (in years) from the calculation date to payment . If desired ...
Duration (finance) In finance, the duration of a financial asset that consists of fixed cash flows, such as a bond, is the weighted average of the times until those fixed cash flows are received. When the price of an asset is considered as a function of yield, duration also measures the price sensitivity to yield, the rate of change of price ...