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what does a higher ytm indicate | whether or not a higher ytm is positive depends on specific circumstances a higher ytm might indicate a bargain opportunity is available since the bond in question is available for less than its par value however investors must determine whether or not this discount is justified by fundamentals such as the creditworthiness of the company issuing the bond or the interest rates presented by alternative investments the bottom linea bond s yield to maturity is the internal rate of return required for the present value of all future cash flows including face value and coupon payments to equal the current bond price ytm assumes that all coupon payments are reinvested at a yield equal to the ytm and that the bond is held to maturity bond investments include municipal treasury corporate and foreign 2 | |
what is yield to worst ytw | yield to worst is a measure of the lowest possible yield that can be received on a bond that fully operates within the terms of its contract without defaulting it is a type of yield that is referenced when a bond has provisions that would allow the issuer to close it out before it matures early retirement of the bond could be forced through a few different provisions detailed in the bond s contract most commonly callability the yield to worst metric is used to evaluate the worst case scenario for yield at the earliest allowable retirement date ytw helps investors manage risks and ensure that specific income requirements will still be met even in the worst scenarios investopedia eliana rodgersunderstanding yield to worsta bond s ytw is calculated based on the earliest call or retirement date it is assumed that a prepayment of principal occurs if a bond issuer uses the call option after the call principal is usually returned and coupon payments are stopped an issuer will likely exercise their callable option if yields are falling and the issuer can obtain a lower coupon rate through new issuance in the current market environment the ytw may also be known as the yield to call ytc in order to identify the ytw yield to call and yield to maturity should both be calculated in general ytw may be the same as yield to maturity but it can never be higher since it represents yield for the investor at an earlier prepayment date than the full maturity ytw is the lowest possible return an investor can achieve from holding a particular bond that fully operates within its contract without defaulting 1 ytw is not associated with defaults which are different scenarios altogether the mechanicsthe yield to call is an annual rate of return assuming a bond is redeemed by the issuer at the earliest allowable callable date a bond is callable if the issuer has the right to redeem it prior to the maturity date ytw is the lower of the yield to call or yield to maturity 2 a put provision gives the investor the right to sell the bond back to the company at a certain price at a specified date there is a yield to put but this doesn t factor into the ytw because it is the investor s option on whether to sell the bond bond investors will also review similar duration securities spread to worst stw values stw calculates the difference between the ytw of a bond and a u s treasury security the equation for calculating ytc is the following analyzing yieldsyields are typically always reported in annual terms if a bond is not callable the yield to maturity is the most important and appropriate yield for investors to use because there is no yield to call yield to maturity is calculated from the following equation if a bond is callable it becomes important to look at the ytw the yield to maturity will always be higher than the ytw because the investor earns more when they hold the bond for its full maturity the ytw is important though because it provides deeper due diligence on a bond with a call provision the shorter time frame a bond is held for the less the investor earns ytw provides a clear calculation of this potential scenario showing the lowest yield possible some other types of yield that an investor might also want to consider include running yield and nominal yield | |
what is yield variance | yield variance is the difference between actual output and standard output of a production or manufacturing process based on standard inputs of materials and labor the yield variance is valued at standard cost yield variance is generally unfavorable where the actual output is less than the standard or expected output but it can be that output expects expectations as well | |
how to calculate yield variance | yield variance is calculated as the actual yield minus the standard yield multiplied by standard unit cost yield variance sc actual yield standard yield where sc standard unit cost begin aligned text yield variance text sc left text actual yield text standard yield right textbf where text sc standard unit cost end aligned yield variance sc actual yield standard yield where sc standard unit cost | |
what does yield variance tell you | yield variance is a common financial and operational metric within manufacturing industries to improve or enhance the measure it s fairly regular for an analyst to adjust inputs for special scenarios for instance during a raw material price spike it may not make sense to use temporary price inputs experiencing short term jumps in prices as these results would be distorted from normal levels here like any other analysis it is part art and science generally yield variance uses direct materials which are raw materials that are made into finished products these are not materials used in the production process direct materials are goods that physically become the finished product at the end of the manufacturing process in other words these are the tangible pieces or components of a finished product if a firm overestimates or underestimates how much material it requires to take to generate a certain amount the material s yield variance will be less than or greater than zero if the standard quantity is equal to the quantity actually used then the variance will be zero if the direct materials yield variance proves that the company is producing less than originally planned for a given level of input the company can review their operations for ways to become more efficient intuitively producing more products with the same level of inventory while keeping quality constant can help the organization improve profitability while a yield variance may tell you whether or not your output is efficient or as expected it can t tell you why the variance occurred or what contributed to it yield variance vs mix varianceyield variance is a measure of the difference in output meanwhile mix variance is the difference in overall material usage or inputs specifically material usage can vary because a mix of products or inputs is used which are different from the standard mix example of using yield varianceif 1 000 units of a product are the standard output based on 1 000 kilograms of materials in an 8 hour production unit and the actual output is 990 units there is an unfavorable yield variance of 10 units 1 000 990 if the standard cost is 25 per unit the unfavorable yield variance would be 250 10 x 25 or consider company abc which will produce 1 000 000 units of a toy for every 1 500 000 units of specialized plastic parts in its most recent production run company abc used 1 500 000 plastic units but only produced 1 250 000 toys the cost of plastic units is 0 50 per unit the yield variance is | |
what is yo yo | yo yo is a slang term for a very volatile market the name comes from the movements of a yo yo toy in a yo yo market security prices continually go up and down a yo yo market has no distinguishing features of either an up or down market rather it exhibits characteristics of both security prices in a yo yo market may swing from very high to reach a low point over a given period of time making it difficult for buy and hold investors to profit understanding a yo yo marketwhile it is difficult for buy and hold investors to profit in a yo yo market they can be profitable environments for astute traders who are able to recognize buy and sell points and make trades before the market reverses these markets are characterized by steep up and down movements in share prices which can occur within a short timeframe such as weeks days or even hours the movements are often abrupt and they usually involve a majority of the stocks moving in unison traders on wall street also refer to this kind of share price activity as all or nothing implying that everything about the market is either good or bad 2015 as an example of a yo yo marketthe occurrence of yo yo markets is rare especially those that last for several days or more they are more likely to occur when market volatility picks up following a protracted rise in stock prices which can tend to make investors nervous for example during the first six months of 2015 the dow jones industrial average djia never fluctuated up or down more than 3 5 as it rose to record heights then in august a convergence of issues china s slowing economy crashing oil prices and the prospect of higher interest rates sent the stock market in a steep decline from aug 20 2015 to sept 1 2015 the market experienced eight trading days in which the standard poor s 500 index advance decline reading was either above 400 or below 400 400 of the 500 stocks in the index were either advancing or declining at the same time within just two days the djia had its worst and best days of the year prior to aug 20 there had been only 13 days when that occurred 1 the previous time the market had experienced an extended number of yo yo days was during the stock market crash of 2008 during a 15 day period from aug 20 2008 to sept 9 2008 there were 11 occurrences | |
what are york antwerp rules | the york antwerp rules are a set of maritime regulations concerning protocols surrounding jettisoned cargo often contracts and bills of lading will include these maritime rules and use them as a framework to establish liability and assign costs for lost and damaged cargo the rules are broken into provisions that help set cost obligations provisions include the general average to help allocate the cost of losses the particular average relating to the cargo owner and the salvage average applied to salvage operations and rescue crews | |
how york antwerp rules work | the york antwerp rules are a set of maritime rules that were established in 1890 amended several times since their inception this set of maritime rules outlines the rights and obligations of both ship and cargo owners in the case that cargo must be jettisoned in order to save a ship generally bills of lading contracts of affreightment and marine insurance policies all include the york antwerp rules in their language the york antwerp rules state three clear principles all of which must be met in order for the rule to be applied the first stipulation is that danger to the ship must be imminent second there must be a voluntary jettison of a portion of the ship s cargo in order to save the whole third the attempt to avoid the danger must be successful if a situation meets all the stipulations all parties involved in the maritime adventure must share proportionately in the financial burden of the losses incurred to the owner or owners of any of the cargo that was jettisoned in order to save the vessel all three principles of the york antwerp rules must be met for the rules to apply origins of the york antwerp rulesthe york antwerp rules are a codification of a principle called the law of general average though the york antwerp rules are quite old themselves the law of general average is a much older maritime principle with roots that go back to ancient greece the law specifies that all parties involved in a sea venture must proportionately share in any losses that result from sacrifices made to the cargo to save the remainder | |
when do you use the york antwerp rules | in a life threatening situation at sea the captain and crew may deem it necessary to jettison the cargo to jettison cargo is a maritime term that is the last resort in an emergency situation where the crew throws the cargo overboard in order to stabilize the vessel if there is a threat to a ship due to damage to the hull weather conditions etc the staff will jettison the cargo while jettisoning happens as a last resort the crew must move quickly when they throw the cargo overboard which means they do not have time to see whose cargo gets tossed this is when the york antwerp rules come into play as those who lost their cargo will receive compensation from the profits of the ship s owner and the owners of the other cargo | |
what was a yugen kaisha yk | a yugen kaisha yk was a type of limited liability company that could be established in japan from 1940 through early 2006 the companies act enacted in japan in june 2005 abolished the yk business form the law changed most yks into kks or kabushiki kaisha kk which were in turn replaced by godo gaisha gg a joint stock company which is now the most common business form in japan the corporation law also changed the corporate governance of yks | |
what is a yuppie | yuppie is a slang term denoting the market segment of young urban professionals a yuppie is often characterized by youth affluence and business success they are often preppy in appearance and like to show off their success by their style and possessions understanding yuppiescoined in the 1980s the term yuppie was used as a derogatory title for young business people who were considered arrogant undeservedly wealthy and obnoxious 1 yuppies were often associated with wearing high fashion clothing driving bmws and gloating about their successes the term has become less of a stereotype and now promotes the image of an affluent professional yuppies tend to be educated with high paying jobs and they live in or near large cities some typical industries associated with yuppies include finance tech academia and many areas in the arts especially those associated with liberal thinking and style history of the term yuppiethere is some debate over who first coined the term yuppie but many attribute this to joseph epstein writer and former editor of the american scholar 2 others credit journalist dan rottenberg with coining the term in 1980 an article titled about that urban renaissance for chicago magazine rottenberg describes the gentrification of chicago s downtown by upwardly mobile young professionals rebelling against suburbia the yuppies seek neither comfort nor security but stimulation and they can find that only in the densest sections of the city he wrote 3linguistically the term was an evolution starting from the word hippie which 20 years earlier was a label attached to someone considered hip to the current culture that word morphed into yippie counterculture advocates associated with the youth international party at nearly the same time a parody of an american stereotype of the country club prep school culture called the preppy handbook made the new york times bestseller list yuppie was the mash up of all of these moments in the young adults in america each a reflection of their time yippies in contrast to yuppies were affiliates of the youth international party a counterculture group that emerged in the late 1960s the term continued to grow throughout the 1980s as it was used in more newspaper and magazine articles after the 1987 stock market crash the term yuppie became less political and gained more of the social implications it has today although its usage declined in the 1990s it has since come back into the united states lexicon it has been used and cited in articles songs movies and other pop culture media to name a few the term has appeared in the novel and film fight club the movie american psycho the satirical blog stuff white people like and the tom petty song yer so bad the term yuppie isn t confined only to the united states other countries such as china russia and mexico have their variations of yuppies that generally also carry the hallmark connotation of young higher class professionals the term tends to spread and thrive in prospering economies modern yuppiesin the 21st century the term takes on new meaning while retaining the basic tenets of original yuppies for example due to the internet and growing reliance on electronic communication the term yuppie could refer to a silicon valley tech worker that doesn t necessarily have the same social skills as the original yuppie but still works for a prestigious company and makes a lot of money this can make it harder to define yuppies since it might not be obvious at first glance that these people have glamorous careers perhaps as a result the term yuppie isn t used as widely as it was in the 1980s and early 1990s a 2015 article in the new york times made the case that the all encompassing definition of yuppies had fragmented 4 micro yuppies abounded these yuppies profess allegiance to lifestyles such as nature based or professional communities such as technology executives or even online communities such as gaming hipsters who mock the consumption culture fostered by modern society have replaced earlier yuppies however the irony of the situation is that they participate in society actively through their choices | |
what is z in the nasdaq | the term z refers to a designation for nasdaq listed securities that identifies a miscellaneous entity this extension is just one of the fifth letter identifiers that appear after a company s ticker symbol it indicates that the stock is different from single issues of common or capital stock the reasons for a z designation tend to vary and may include things like depositary receipts or units the reasons for a z designation aren t always obvious and usually require a little research understanding zcompanies must choose a unique ticker symbol when they want to list on a stock exchange this symbol is made up of a series of characters that identifies the company s stock it allows traders to execute transactions for these securities the ticker symbol also identifies the stock exchange on which a particular security trades for instance a ticker with three letters trades on the new york stock exchange nyse while those with four letters trade on the nasdaq these ticker symbols may come with suffixes that alert shareholders to specific situations about the stock itself suffixes for nasdaq listed securities appear as fifth letter identifiers and follow a dot after their ticker symbols 1 when a fifth letter appears it identifies the issue as different from a single issue of common stock or capital stock the z letter suffix identifies a variety of miscellaneous entities 1 unlike other designations this one can be fairly vague so it s up to individuals investors and traders to do their due diligence doing a little research can help them figure out why the suffix is added to the end of the security s ticker symbol as mentioned above the letter z identifies securities that are not single issues of common or capital stock it may indicate that the security is a depositary receipt stub additional warrant or another type of unit z historically had a different meaning in futures trading though where it indicated a delivery month of december until new options symbology was introduced in 2010 the nyse uses fourth letter identifiers to distinguish unique instances when certain issuances vary from normal conditions z vs other letter designationsthe nasdaq uses a variety of letters or fifth letter designations to distinguish stock issuances and the rights that come along with them z is just one of those designations like z the letter l also identifies miscellaneous entities this identifier denotes certificates of participation cops preferred participation and stubs if you see a ticker symbol with the letter p after a dot it means that the issuance is the preferred first issue of a company while the letter o is the second preferred issue the letter e means the company is delinquent with a securities and exchange commission sec filing while k denotes a series of non voting stock the letter f means that the stock is a foreign issue | |
what is z bond | a z bond also known as an accrual bond is often the last bond to mature it receives payment which is the accrual of interest added to the principal after all other bond classes understanding z bonda z bond is the last tranche of a collateralized mortgage obligation cmo as the last portion of the debt security it receives payment last unlike other tranches of a cmo a z bond does not distribute payments to its holder until all the separate tranches are paid however the interest will continue to accrue throughout the life of the mortgage thus when the z bond does finally pay off its holder can expect a hefty sum the bond will pay both principal and interest z bonds are categorized as speculative investments and can be risky for investors a z bond is a type of mortgage backed security mbs an mbs is made up of a pool of underlying securities that are usually home mortgages an mbs is secured only by the lender s confidence in the borrower s ability to make their mortgage payments if a pool of borrowers all default on their mortgage payments and those mortgages are packaged together into a single cmo the investor holding a z bond for that cmo may lose money without the incoming mortgage payments the bonds cannot be paid off people who invested in other tranches of the cmo may still make back their initial investment however because z bonds pay out after all other portions the z bond holder stands to lose the most conversely the inclusion of z bonds increases the confidence in the other tranches of the cmo given that the z bonds payments can be applied to satisfy the payment obligations of the other tranches before the z bonds obligations minimizing z bond riskmost mortgage backed securities are issued by either a federal agency or by a government sponsored entity gse such as fannie mae and freddie mac those that are issued by a federal agency are backed by the full faith and credit of the u s government in this way they can be extremely low risk because they are guaranteed by the u s treasury 1 however a government sponsored entity gse does not have u s treasury backing these entities may borrow money directly from the treasury but the government is not obligated to provide funds to bail out these agencies should they find themselves unable to pay their debts though these securities carry some risk that risk is generally considered to be low for example during the 2007 08 financial crisis freddie mac and fannie mae were deemed too big to fail and the u s treasury stepped in to support their debt 2 a smaller portion of mortgage backed securities mbs comes from private firms such as investment banks and other financial institutions these securities should be considered significantly higher in risk as the u s government does not back them the issuers cannot borrow directly from the u s treasury should the mortgages default | |
what is z score | z score is a statistical measurement that describes a value s relationship to the mean of a group of values z score is measured in terms of standard deviations from the mean in investing and trading z scores are measures of an instrument s variability and can be used by traders to help determine volatility understanding z scorez score is a statistical measure that quantifies the distance between a data point and the mean of a dataset it s expressed in terms of standard deviations it indicates how many standard deviations a data point is from the mean of the distribution if a z score is 0 it indicates that the data point s score is identical to the mean score a z score of 1 0 would indicate a value that is one standard deviation from the mean z scores may be positive or negative with a positive value indicating the score is above the mean and a negative score indicating it is below the mean the z score is sometimes confused with the altman z score which is calculated using factors taken from a company s financial reports the altman z score is used to calculate the likelihood that a business will go bankrupt in the next two years while the z score can be used to determine how far a stock s return differs from it s average return and much more z score is also known as the standard score z score formulathe statistical formula for a value s z score is calculated using the following formula | |
how to calculate z score | calculating a z score requires that you first determine the mean and standard deviation of your data once you have these figures you can calculate your z score so assume you have the following variables you would use the variables in the formula so your selected value has a z score that indicates it is 1 25 standard deviations from the mean to determine z score using a spreadsheet you ll need to input your values and determine the average for the range and the stadard deviation using the formulas you ll find that the following values have a mean of 12 17 and a standard deviation of 6 4 using the z score formula you can figure out each factor s z score use the following formula in d2 then d3 and so on | |
how the z score is used | in it s most basic form the z score allows you determine how far measured in standard deviations the returns for the stock you re evaluating are from the mean of a sample of stocks the average score you have could be the mean of a stock s annual return the average return of the index it is listed on or the average return of a selection of stocks you ve picked some traders use the z scores in more advanced evalulation methods such as weighting each stock s return to use factor investing where stocks are evaluated based on specific attributes using z scores and standard deviation in the forex markets traders use z scores and confidence limits to test the capability of a trading system to generate winning and losing streaks z scores vs standard deviationin most large data sets assuming a normal distribution of data 99 7 of values lie between 3 and 3 standard deviations 95 between 2 and 2 standard deviations and 68 between 1 and 1 standard deviations standard deviation indicates the amount of variability or dispersion within a given data set for instance if a sample of normally distributed data had a standard deviation of 3 1 and another had one of 6 3 the model with a standard deviation sd of 6 3 is more dispersed and would graph with a lower peak than the sample with an sd of 3 1 a distribution curve has negative and positive sides so there are positive and negative standard deviations and z scores however this has no relevance to the value itself other than indicating which side of the mean it is on a negative value means it is on the left of the mean and a positive value indicates it is on the right the z score shows the number of standard deviations a given data point lies from the mean so standard deviation must be calculated first because the z score uses it to communicate a data point s variability | |
what is z score | the z score is a way to figure out how far away a piece of data is from the average of a group measured in standard deviations it tells us if a data point is typical or unusual compared to the rest of the group which is useful for spotting unusual values and comparing data between different groups | |
how is z score calculated | the z score is calculated by finding the difference between a data point and the average of the dataset then dividing that difference by the standard deviation to see how many standard deviations the data point is from the mean | |
how is z score used in real life | a z score is used in many real life applications such as medical evaluations test scoring business decision making and investing and trading opportunity measurements traders that use statistical measures like z scores to evaluate trading opportunities are called quant traders quantitative traders | |
what is a good z score | the higher or lower a z score is the further away from the mean the point is this isn t necessarily good or bad it merely shows where the data lies in a normally distributed sample this means it comes down to preference when evaluating an investment or opportunity for example some investors use a z score range of 3 0 to 3 0 because 99 7 of normally distributed data falls in this range while others might use 1 5 to 1 5 because they prefer scores closer to the mean | |
why is z score so important | a z score is important because it tells where your data lies in the data distribution for example if a z score is 1 5 it is 1 5 standard deviations away from the mean because 68 of your data lies within one standard deviation if it is normally distributed 1 5 might be considered too far from average for your comfort the bottom linea z score is a statistical measurement that tells you how far away from the mean or average your datum lies in a normally distributed sample at its most basic level investors and traders use quantitative analysis methods such as a z score to determine how a stock performs compared to other stocks or its own historical performance in more advanced z score uses traders weigh investments based on desirable criteria develop other indicators or even try to predict the outcome of a trading strategy | |
what is a z share | a z share is a class of mutual fund shares that employees of the fund s management company are allowed to own employees may have the option to buy z shares they are also used in employee benefit plans and offered as a part of compensation or through a reward package | |
how z shares work | z shares are typically no load funds which can make them an even more attractive investment for employees they usually have no front end or back end fees generally they also have one of the lowest expense ratios while z share investors will pay the same management and miscellaneous fund expenses as other investors their expenses usually do not include distribution or service fees since they are bought and sold directly through the management company without the involvement of an intermediary similar to stock options and stock incentive grants mutual fund companies offer z shares as compensation or through a reward package in some cases employers may match the number of shares purchased as a bonus for employees z shares are held in employee benefits accounts all z share transactions are managed by the fund company which provides reporting for the employees on the investments other aspects of z shares are similar to the other share classes in the fund z share assets are pooled by the fund for management and operational economies of scale open end fund z shares must be transacted at the forward price which is its next reported net asset value overall mutual fund companies structure their offerings to include z shares as a firm wide incentive z shares are a valuable instrument that mutual fund companies can use in all types of employee compensation they are also used broadly in employee benefit plans z shares can be a valuable offering for employees considering long term employment prospects companies also use z shares to support employee morale loyalty and long term career development franklin templeton z shares examplefranklin templeton is a prominent mutual fund manager offering z shares across nearly all of its mutual fund offerings the franklin mutual shares fund muthx provides one example this fund offers a c r r6 and z shares the z shares in the franklin mutual shares fund have no front end or back end fees for employees the expense ratio is also one of the lowest among all share classes at 0 81 in addition its annual 12b 1 fee is 0 because this franklin templeton mutual shares stock also doesn t require any distribution and service fees this helps to keep the annual expense ratio down the lower fees have helped the z share class to report high returns since inception | |
what is a z test | a z test is a statistical test used to determine whether two population means are different when the variances are known and the sample size is large it can also be used to compare one mean to a hypothesized value the data must approximately fit a normal distribution otherwise the test doesn t work parameters such as variance and standard deviation should be calculated for a z test to be performed understanding z teststhe z test is also a hypothesis test in which the z statistic follows a normal distribution the z test is best used for greater than 30 samples because under the central limit theorem as the number of samples gets larger the samples are considered to be approximately normally distributed | |
when conducting a z test the null and alternative hypotheses and alpha level should be stated the z score also called a test statistic should be calculated and the results and conclusion stated a z statistic or z score is a number representing how many standard deviations above or below the mean population a score derived from a z test is | examples of tests that can be conducted as z tests include a one sample location test a two sample location test a paired difference test and a maximum likelihood estimate z tests are closely related to t tests but t tests are best performed when an experiment has a small sample size also t tests assume the standard deviation is unknown while z tests assume it is known if the standard deviation of the population is unknown the assumption of the sample variance equaling the population variance is made the z score is calculated with the formula | |
what is a z tranche | a z tranche is the lowest ranked tranche of a collateralized mortgage obligation cmo in terms of seniority its owners are not entitled to any coupon payments receiving no cash flow from underlying mortgages until the more senior tranches are retired or paid off instead of paying interest to the z tranche the money is used to pay off the principal of the upper tranches faster in turn the principal of the z tranche increases over this time due to the accrued interest the z tranche is also written as z tranche and referred to as the accrual tranche typical z tranche investors include those that possess long term liabilities or those who worry about reinvestment risk the possibility of being unable to reinvest cash flows at a rate comparable to their current rate of return understanding a z tranchecmos a type of mortgage backed security mbs that contains a pool of home loans bundled together and sold as an investment are stratified so that the contrasting needs of various investors can be met using the same pool of assets tranches are created to divide up different mortgage profiles into slices that have financial terms suitable for specific investors the a tranche for example may offer short term income and a shorter time to maturity the b tranche would then offer a longer time frame of steady cash flow at the bottom of the structure is the z tranche the z tranche is mainly used to improve the attractiveness of the tranches above it the payments that would be going to the z tranche instead are dedicated to speeding up the maturity of the senior tranches z tranche structure and paymentz tranches are structured as the final tranche in a sequential pay cmo after the earlier tranches in the series have been retired the z tranche begins paying cash payments that include both principal and interest 1a z tranche is structured in a way so that there is no interest paid until the lockout period ends and the tranche begins to pay the principal the tranche is credited the accrued interest and the bond s face amount is increased by its coupon rate on each payment date 1advantages and disadvantages of a z tranchethe z tranche plays a critical role in the creation and long term success of a cmo helping to make its senior tranches more secure that also means that they don t tend to make very attractive investments z tranches are described as the riskiest tranche for a reason it can take decades before an investor sees any money from them so their holders are up against the time value of money z tranches have average life spans of 18 to 22 years of which the accrual period is expected to last eight to 10 years although a prepayment rate above expectations can significantly shorten both waiting for everyone else to collect first comes with several other caveats as we saw during the great recession homeowners can eventually default on loans another big risk that increases over time is outstanding balances on mortgages being paid off ahead of schedule this phenomenon known as prepayment risk prevents mbs holders from recouping all the interest payments they expected to receive as part of their investment the volatility that the z tranche experiences provides additional stability to the upper tranches making it the ultimate team player within the cmo stratification z tranches face a lot of volatility over their lifespans as interest rates fluctuate and the mortgage pool goes through its refinancing bouts and refinancing burnout despite these flaws there is a market for z tranches indicating that there are people out there who choose to invest in them these individuals usually have capital on hand and want to park it rather than have to reinvest it regularly interest accrues before the payout periodlow reinvestment riskno cash flow until other tranches retiredhigh volatilitycan take a long time to receive a payoutexample of a z trancheto give an example of a z tranche let s say you get a mortgage from first example bank the bank decides to transfer the money into your account per your agreement you agree to repay this amount over time per the mortgage payment schedule first example bank doesn t necessarily need to keep the mortgage in their own portfolio and they could choose to sell it if first example bank sells the mortgage to second example bank they are then able to use the money from the sale for other investments once second example bank receives the purchased mortgage it will group them together this is called mortgage pooling second example bank will then sell securities to investors that represent the pool of mortgages you make your payment as scheduled to first example bank they keep a small amount and pass the rest of the payment to second example bank which also takes a small amount in the form of a fee passing what is left of the principal and interest to the investors who purchased securities representing the mortgage pool these are broken down into tranches with the z tranche coming last therefore investors who purchased a z tranche only receive the interest and principal payments after all the other tranches have retired paid | |
how can i buy a cmo | cmos are over the counter product offerings and can be purchased through an issuing institution other than individual investors pension funds insurance companies commercial banks credit unions savings banks and other financial institutions also buy cmos 2 | |
which cmo tranche has the most prepayment risk | the cmo tranche that carries the most prepayment risk is the first tranche which is the most junior as more payments are made and tranches retired the risk of prepayment decreases | |
what kinds of risk do cmos have | cmos carry specific risks such as the possibility that not all payments will be made on time there could be a loss of premium due to prepayments a risk of interest rates rising and the effect that would have on the securities and extensions when the principal is returned earlier or later than expected 3 | |
is a cmo a pass through security | a cmo is not a pass through security although they are similar in that they are both securities created from pools of mortgages the bottom linea z tranche is the riskiest tranche in a cmo and the one that takes the longest time to pay out investors will typically consider z tranches if they want to park their money in an investment and not have to worry about adjusting it over time however z tranches are still considered a risk and can be affected by changes in the interest rate environment and if payments are made met on time | |
what is zacks investment research | zacks investment research is an american company dedicated to the production of independent research and investment related content it was founded in 1978 by len zacks based on his insights while pursuing his ph d at mit the company provides professional investors with financial data and analysis to help make better investment decisions for proprietary accounts and the investment accounts of clients zacks is probably known best known for its extensive array of consensus earnings per share eps estimates more recently the company has moved into other related areas including research reports recommendation summaries on various stocks stock prices funds charts and tables and a host of other investment tools and data understanding zacks investment researchzacks uses a quantitative stock rating system that is purely mathematical meaning they re not influenced by the biases or preferences of individual analysts the rating system relies heavily on earnings per share eps related metrics such as revisions to a company s projected earnings these ratings are based on research produced by u s brokerage firms every day the company collects electronic data feeds and printed research on more than 8 500 north american publicly traded companies from 185 brokerage firms by combining and aggregating the opinions of thousands of analysts the company is able to identify expert consensus on the earnings potential of certain stocks 1zacks ranksa key element of zacks research products is zacks ranks a set of investment ratings that groups equity products according to their earnings potential originally launched for stock rankings zacks ranks is now available for mutual funds exchange traded funds and other vehicles zacks ranks assigns stocks into five categories ranging from strong buy to strong sell based on the aggregate analysis of multiple brokerage assessments according to the company zacks strong buy stocks have generated better than 25 annual average returns and outperformed the s p 500 in 26 years out of 30 2zacks ranks uses four criteria to assess earnings potential these rankings are based on len zacks insight that earnings estimate revisions are the most powerful force impacting stock prices when a stocks earnings estimates are revised upwards institutional buyers will typically enlarge their positions thereby buoying the prices of that security since large buyers take a long time to enlarge their positions a small individual investor can quickly take advantage of the anticipated price bump 4zacks ranks is a system that rates stocks between one to five unlike most ratings systems a 1 zacks rank means strong buy zacks vs morningstarzacks investment research is frequently compared with morningstar inc a chicago based investment research firm that compiles data on mutual funds and etfs like zacks morningstar publishes analysis and rates funds on a five tiered scale however the two companies take different approaches to investment research while zacks relies on quantitative analysis of fund performance morningstar has a larger focus on fundamental analysis morningstar also uses a proprietary mathematical formula based on past performance to determine how each fund ranks in its respective category both companies offer free and paid products with different levels of access at each tier example of zacks investment researchzacks lists several cases of successful predictions to demonstrate the success of their investment model one example is lsb industries lsx which was given a strong buy in july of 2012 in anticipation of a potential breakout over the next three months the strong buy rating indicated that brokerage analysts had revised their earnings estimates for lsx and were likely to continue revising their projections upwards within three months following several more upward revisions lsx had returned 36 gains to investors who used zacks research compared to 5 returns by the s p 500 5the bottom linezacks investment research is one of many firms that publish data and analysis of mutual funds stocks and other investment vehicles however zacks stands out for its unique quantitative approach focusing on revised earnings estimates as the key to identifying strong performers because brokerage analysts tend to be extremely conservative when it comes to revising their estimates these revisions can be indicators of strong future performance | |
what is zacks stock screener | the stock screener is a paid product by zacks investment research that allows an investor to sort and search for stocks according to desirable metrics such as price changes dividends or return on investment in keeping with their focus on earnings estimates the zacks stock screener also allows investors to sort stocks according to their zacks rank and changes to their earnings per share 6 | |
how much does zacks stock screener cost | zacks premium screens are available with a premium membership priced at 249 per year this product is also available for higher tiers with prices ranging as high as 2995 per year 7 | |
what is the zacks industry rank | the zacks industry rank is the average zacks rank of all the companies in a specific industry sector this metric can be used to identify favorable industry wide conditions that could benefit similar companies 8 | |
what is the zacks mutual fund rank | the zacks mutual fund rank is a rating that is applied to mutual funds in the same way that zacks ranks are assigned to individual stocks each quarter the zacks quantitative research department calculates a rating for 19 000 different mutual funds based on the average zacks rank of the stocks held by each fund as well as other quantitative factors 9 | |
what is the zacks etf rank | zacks etf rank is a similar ranking system that seeks to identify exchange traded funds that have a favorable one year outlook these rankings are based on a wide range of quantitative metrics such as expense ratio momentum yields and the assets contained in each etf 10 | |
what are zacks lifecycle indices | zacks lifecycle indices are a series of indexes developed by zacks investment research inc that provide a benchmark for the lifecycle allocation of various target date funds with a different index for each target date understanding zacks lifecycle indiceszacks lifecycle indices provide comparative benchmarks for lifecycle or target date funds that have become popular with investors saving for retirement especially those without the knowledge or interest to be actively involved in the management of their investments as the target date approaches the asset allocation or glide path gradually becomes more conservative zacks a provider of proprietary research on securities and packaged investments launched its lifecycle indexes in 2007 it uses proprietary selection rules to identify stocks and bonds with risk return profiles consistent with general market benchmarks at launch the five zacks indices consisted of different combinations of u s stocks international developed markets stocks and u s bonds for funds with target dates of at retirement as well as 2010 2020 2030 and 2040 example the zacks 2040 lifecyle indexthe zacks 2040 lifecycle index ticker tdaxfo is designed for investors expecting to retire in 2040 according to zack s website the objective of the index is to select a diversified group of stocks bonds and complementary securities with the potential to outperform on a risk adjusted basis general market benchmarks 1 the index constituent selection methodology utilizes multi factor proprietary selection rules to determine the optimal mix of domestic stocks international stocks and fixed income securities in the overall allocation and to identify those securities that offer the greatest potential from a risk return perspective the approach is specifically designed to enhance investment applications and investability the index is adjusted annually or as required to assure timely stock selections motivation for zacks lifecycle indiceszacks created the lifecycle indexes to provide more in depth details on the risk and return characteristics of target date funds or tdfs educating shareholders in these funds about the high level of equity exposure and thus risk of principal loss at the target date was one of the primary motivations for the series most target date funds define their target as either to or through the probable retirement age of a fund shareholder either investing through that date or to that date as zacks explained in its launch most tdf glidepaths target actuarial life expectancies in other words most of these funds assume the shareholder will remain invested and need some combination of growth and conservation of capital during retirement and keep a portion of their allocation in higher risk equities zacks believed this setup created undue risk for investors with short term capital needs such as funding a college education or paying for medical expenses where losing a large portion of principal was unacceptable a tdf investing to a target date meanwhile would permanently shift to a conservative capital preservation based allocation at retirement consisting mostly of bonds and cash with the goal of generating income while protecting principal critics of these tdfs suggest that retirees expected to be in retirement for 20 to 30 years or more need the capital appreciation provided by equity exposure to prevent them from outliving their retirement savings another consideration is the differing glide paths followed by each provider of target date funds the fidelity freedom 2030 fund is expected to hold 53 equities 40 bonds and 7 cash at retirement in 2030 a more aggressive allocation than the t rowe price target 2030 fund which would hold 42 5 equities and 57 5 bonds | |
what does zakat mean | zakat is an islamic finance term referring to the obligation that an individual has to donate a certain proportion of wealth each year to charitable causes zakat is mandatory for all muslims in most countries and is considered to be a form of worship giving away money to the poor is said to purify yearly earnings that are over and above what is required to provide a person and their family with their essential needs | |
how zakat works | there are five pillars of islam the declaration of faith prayer fasting during ramadan the hajj pilgrimage and zakat zakat is a compulsory procedure for muslims who earn above a certain threshold it should not be confused with sadaqah the act of voluntarily giving charitable gifts out of kindness or generosity religious texts offer comprehensive descriptions of the minimum amount of zakat that should be distributed to those less fortunate it generally varies depending on whether wealth came from farm produce cattle business activities paper currency or precious metals like gold and silver zakat is based on income and the value of possessions the common minimum amount for those who qualify is 2 5 or 1 40 of a muslim s total savings and wealth the recipients of zakat are the collectors of zakat are also compensated for the work they do each year between 200 billion and 1 trillion is spent on mandatory alms and voluntary charity across the muslim world according to islamic financial analysts 1special considerationsas one of the five pillars of islam zakat is a religious obligation for all muslims who meet the necessary criteria of wealth this rule plays a major role in the history of islam and has led to disputes notably during the ridda wars zakat is considered to be a mandatory type of tax although not all muslims abide in many countries with large muslim populations individuals can choose whether or not to pay zakat that is not the case for countries such as libya malaysia pakistan saudi arabia sudan and yemen 2 those who fail to pay zakat in places where it is compulsory are treated like tax evaders and warned that they will face god s punishment on judgment day there has been considerable controversy and criticism surrounding zakat though islamic scholars and development workers argue that it has failed to lift people out of poverty prompting them to suggest that the funds are being wasted and mismanaged a personal residence doesn t count toward wealth and thus doesn t count when calculating zakat property used to generate income such as a rental or vacation home does 3zakat vs nisabnisab is a term that often appears alongside zakat it is a threshold referring to the minimum amount of wealth and possessions that a muslim must own before being obligated to pay zakat in other words if personal wealth is below this minimum during one lunar year no zakat is owed for that period the nisab is set at the value of 87 48 grams of gold or 612 36 grams of silver not everyone pays zakat at the same time that s where nisab comes into play individuals become eligible to pay zakat once they reach the threshold during the full lunar year so one individual may owe it earlier than someone else there is no set payment date for zakat but it is often paid out at the end of the year once calculations on any leftover wealth are made some muslims believe that paying zakat during ramadan brings good fortune this requires that individuals take regular inventory of their possessions and wealth this can be done either weekly or monthly | |
what is zakat in islam | zakat is an islamic financial term as one of the pillars of the faith it requires all muslims to donate a portion of their wealth to charity muslims must meet a certain threshold before they can qualify for zakat the amount is 2 5 or 1 40 of an individual s total savings and wealth zakat can be paid at any time during the lunar year some islamic countries require citizens to pay zakat while others do not | |
how do you calculate zakat | muslims should take inventory of their possessions and wealth once they reach nisab or the threshold which is the value of 87 48 grams of gold or 612 36 grams of silver they must pay zakat the total amount to be paid is 2 5 or 1 40 of their total savings and wealth muslims can use any number of zakat calculators which are available online to determine their obligations | |
what are the rules of zakat | individuals must meet a certain threshold known as nisab in order to qualify for zakat every lunar year this is set at the value of 87 48 grams of gold or 612 36 grams of silver people whose wealth exceeds the value of these amounts must pay 2 5 of the value of their wealth in zakat individuals who do not meet this limit are not obligated to pay | |
how much are muslims obligated to pay in zakat | muslims are obligated to pay 2 5 of the total value of their wealth less any liabilities in zakat provided they reach nisab this is the threshold which is the value of 87 48 grams of gold or 612 36 grams of silver some muslim countries make zakat mandatory just like taxes others though do not obligate their citizens to do so the bottom linesharia is a set of religious laws that adherents of the islamic faith follow it dictates various facets of muslim life from rituals to raising a family to financial matters zakat is an islamic financial term that obligates muslims to donate a portion of their wealth to charitable causes while the practice is mandatory in many islamic nations some countries don t obligate their citizens to do so whether obligatory or voluntary using an online zakat calculator can help individuals determine just how much of their wealth they must donate each lunar year | |
what is zcash zec | zcash emerged in 2016 when a group of scientists decided they wanted to create a cryptocurrency similar to bitcoin but with some additional features they developed a fork of the bitcoin blockchain with enhanced user security and anonymity the scientists first invented zerocoin which became zerocash not too long after its initial release eventually the cryptocurrency was renamed zcash 1history of zcash zec zcash is forked from the original bitcoin codebase in 2014 eli ben sasson alessandro chiesa christina garman matthew green ian miers eran tromer and madars virza believed there were security flaws in the way transactions were tracked through bitcoin s blockchain in their whitepaper outlining their ideas they called their cryptocurrency zerocash 2the scientists created zerocoin electric coin company in 2015 in 2016 the name changed to zcash by the electric coin company 1zcash uses the zk snark security protocol to ensure the parties involved in a transaction are verified without revealing any information to each other or the network 1zcash is an altcoin a category of cryptocurrency labeled by the crypto community to refer to any cryptocurrency that is not bitcoin many altcoins are different in their purpose and intended uses zk snark allows for fully shielded transactions in which the sender recipient and amount are encrypted this feature is a large deviation from other cryptocurrencies where transaction transparency is an underlying concept aside from securing user information in 2019 electric coin company ecc passed the trademark and license for zcash to the zcash foundation in a bilateral usage agreement in april 2024 ecc announced its intent to terminate the agreement and pass all governance decisions to the foundation effectively removing itself from the project 3 | |
how is zcash different from bitcoin | the bitcoin community prides itself on transparent transactions while maintaining anonymity however anyone interested or who has a stake in a transaction could trace the parties within it zcash doesn t eliminate transaction information instead it encrypts it so that it cannot be tracked the zcash blockchain is still transparent but the security protocol zk snark adds additional user security and anonymity 4bitcoin uses the hashing algorithm sha 256 5 zcash uses equihash which is incompatible with hardware and software designed for bitcoin mining it also has larger blocks and increased hashing times which increases the network s hash rate a cryptocurrency s hash rate is the processing power of the network of miners it s a measure of how fast the transactions can be verified and validated to open a new block 4joining a mining pool is one of the best ways to benefit from zcash mining efficiency and opportunities to earn are increased when resources are pooled together goals of zcashzcash was designed to be efficient safe and anonymous the developers behind zcash also promoted complying with regulatory requirements additionally full transparency is an option when using zcash if this option is chosen its transparency is similar to bitcoin s when transfers are conducted | |
how to mine zcash | new coins are produced by mining you can use an application specific integrated circuit asic miner or your computer if it has a graphics card capable of mining operating systems supported by zcash are docker debian ubuntu mac and other linux flavors however zcash recommends using an asic miner and mining pool because the network difficulty has gotten so high that pc mining is not worth the time and costs 6zcash uses a proof of work mining algorithm which requires miners to compete against each other to produce a new block by racing to solve a cryptographic problem 4 the first miner to find the solution opens a new block and receives the block reward who founded zcash zcash was founded by a group of scientists and zooko wilcox o hearn a computer security specialist who created the electric coin company | |
is there a future for zcash | zcash has been turned over to the zcash foundation which will continue development regarding its future it s difficult to say whether zcash has any staying power or not | |
what is the disadvantage of zcash | one of the most significant hurdles zcash faces is that it is another cryptocurrency payment system in an ocean full of them it offers users more anonymity than other cryptocurrencies but due to the regulatory environment and investigations into anti money laundering techniques using crypto anonymizing services that means there is more scrutiny for users the bottom linezcash is a cryptocurrency that was developed from a fork of bitcoin to enhance the anonymity of its users it is still an actively traded cryptocurrency on many exchanges but its user base has dropped somewhat since 2018 7the comments opinions and analyses expressed on investopedia are for informational purposes only read our warranty and liability disclaimer for more info | |
what is a zero balance account zba | a zero balance account zba is exactly what it sounds like a checking account in which a balance of 0 is maintained when funds are needed in the zba the exact amount of money required is automatically transferred from a central or master account similarly deposits are swept into the master account daily corporations sometimes use zero balance accounts to ensure funds are readily available throughout different departments to eliminate excess balances in separate accounts and to maintain greater control over the disbursement of funds these accounts often handle items such as payroll petty cash and other similar needs | |
how zero balance accounts zbas work | the master account provides a centralized place to manage an organization s funds whenever funds are required in the zba checking account to cover a charge or transaction money is transferred from the master account in the exact amount required there is no need for an employee to do this manually as the process is fully automated the zba s activity is limited to the processing of payments and is not used to maintain a running balance using a zba to fund debit cards issued by the organization helps ensure that all of the activity on the cards is pre approved since idle funds are not present within the zba it is not possible to run a debit card transaction until funds are supplied to the account the use of a zba as a spending control mechanism is especially helpful when managing incidental charges across a large organization by limiting quick access to funds via debit cards it is more likely that proper approval procedures will be followed prior to the completion of a purchase this permits easy tracking of transfers and reconciliation across accounts advantages and disadvantages of zbastransactions from zbas are self managed often saving the account holder time for having to manually rebalance or fund transactions zbas may also be easier to reconcile audit or receive department level reporting on spending because so much of zbas is automated many companies find there are less clerical errors or transaction failures due to human error this saves on overdraft fees zbas are also great control mechanisms to monitor spending if a company has one main account instead of many accounts with bank balances a company can mitigate the chance of their bank account being compromised by unapproved or fraudulent transactions by concentrating funds in the master account more money is available for investments rather than having small dollar amounts idle within a variety of subaccounts the master account often has additional benefits such as a higher interest rate on balances thus zbas maximize funds available for investment and minimize the risk of overdraft fees there are some downsides to zbas though sweeping and transfers are automatic the business must still reconcile bank statements and monitor for failed transactions should a transaction fail to process or be canceled money moved into that account may automatically swept back resulting in multiple unnecessary transactions last though intended to relieve administrative burdens zbas proliferate the number of bank accounts a company owns and may result in higher admin demands requirements to open zbasnot everyone can qualify for a zba banks will often not offer this product to general consumers and will only offer this solution to companies in addition banks may not provide zbas to small unestablished businesses by its nature zbas must have a linked master account and the bank offering the zba will likely require the master account be held at their institution the bank may require transaction history evidence historical average bank balances estimated spend projections and applicable credit history information prior to opening the account although zbas don t often have cash balances those balances are often insured up to certain limits by both the fdic and ncua special considerationsan organization may have multiple zero balance accounts to improve budget management and make the process of allocating funds more efficient this can include creating a separate zba for each department or function as a way to monitor daily monthly or yearly charges other reasons for creating separate zbas might involve the financial management of particular short term projects or those at particular risk for unexpected overages the use of zero balance accounts helps to prevent excess charges without proper notification and approval | |
what is a zero balance account | a zero balance account is a bank account that intentionally carried 0 a company only funds the account when items need to be paid and any remaining cash after deposits is often swept at the end of the night a zero balance account relies heavily on a master account to sweep money | |
is a zero balance account bad | in the context of the financial product a zero balance account is not bad a company intentionally holds 0 in the account and only puts money into the account when a transaction will occur a company does this to strategically manage cash and protect its assets | |
how can i open a zero balance account | zero balance accounts are often only offered to businesses in addition a business must often have been operating for some time with credit history banking history and proof of future cash flow prior to opening a zba | |
what are the benefits of a zero balance account | a zero balance account automatically sweeps funds from a master account to pay obligations or sweeps unused funds into a master account the account is intended to increase efficiency of how cash is used limit risk and fraud and streamline the banking process | |
what is a zero balance card | the term zero balance card refers to a credit card with no outstanding balance of debt credit card users can maintain zero balance cards either by paying off their full balances at the end of each billing cycle or by simply not using their cards in either case maintaining zero balance cards can benefit credit card users by helping to improve their credit score understanding zero balance cardsmany credit card users rely on their credit cards to finance everyday transactions such as groceries gasoline or various discretionary purchases according to a survey by clever roughly 53 of borrowers pay off their full outstanding balances each month 1this method of using credit cards can be very beneficial to the user since it allows them to enjoy benefits such as cash back incentives and rewards programs without actually incurring any interest on the debts since credit card companies typically calculate their customers outstanding debts at the end of each month these customers credit cards would show an outstanding balance of zero making them zero balance cards but what about the roughly 47 of customers who do not pay off their credit card balances each month 1 these credit card users will show a steady balance of outstanding debt from one month to the next the size of which will be recorded on their credit report if the outstanding balance becomes too large relative to their credit limit then this may have a negative effect on the borrower s credit score on the other hand maintaining a relatively low balance of debt relative to their credit limit can help improve a borrower s credit score if you re having trouble maintaining an outstanding balance of zero on your current card due to a high interest rate you might be worth considering a balance transfer to a better card real world example of a zero balance cardin the past some credit card companies would charge their customers inactivity fees if they failed to make regular purchases using their credit cards this practice was made illegal through the passage of the credit card act in 2009 although credit card companies are still permitted to charge annual fees on their cards 2assuming a zero balance card does not have an annual fee keeping the account open can benefit the cardholder by helping to decrease their overall level of credit utilization for example suppose you are the holder of three credit cards one is a zero balance card with a credit limit of 5 000 the second has a 1 000 balance with a credit limit of 4 000 and the third has a 2 000 balance with a credit limit of 3 000 in total your combined credit limit is 12 000 and your combined balance is 3 000 giving you an overall utilization ratio of 25 from this example we can plainly see that keeping the zero balance card is helpful in reducing your overall ratio after all if you closed the card your combined balance would still be 3 000 but your credit limit would drop to only 7 000 as a result your new utilization ratio would rise to over 40 | |
what is zero based budgeting zbb | zero based budgeting zbb is a method of budgeting in which all expenses must be justified for each new period the process begins from a zero base and every function within an organization is analyzed for its needs and costs the budgets are then built around what s needed for the upcoming period regardless of whether each budget is higher or lower than the last one mira norian investopedia | |
how zero based budgeting zbb works | zbb allows top level strategic goals to be implemented into the budgeting process by tying them to specific functional areas of the organization costs can then be first grouped and then measured against previous results and current expectations zero based budgeting can be a rolling process done over several years with a few functional areas reviewed by managers or group leaders at a time because of its detail oriented nature it can help lower costs by avoiding blanket increases or decreases to a prior period s budget but it s a time consuming process that takes much longer than traditional cost based budgeting 1the practice favors areas that achieve direct revenues or production because their contributions are more easily justifiable than in departments such as client service and research and development zero based budgeting is primarily used in business but it can be used by individuals and families too zero based budgeting vs traditional budgetingtraditional budgeting calls for incremental increases over previous budgets such as a 2 increase in spending zero based budgeting requires a justification of both old and new expenses traditional budgeting also only analyzes new expenditures zbb starts from zero and calls for a justification of old recurring expenses in addition to new expenditures zero based budgeting aims to put the onus on managers to justify expenses it drives value for an organization by optimizing costs not just revenue example of zero based budgetingsuppose a construction equipment company implements a zero based budgeting process calling for closer scrutiny of manufacturing department expenses the company notices that the cost of certain parts used in its final products and outsourced to another manufacturer increases by 5 every year the company can manufacture those parts in house using its workers it finds after weighing the positives and negatives of in house manufacturing that it can make the parts cheaper than the outside supplier the company can identify a situation in which it can decide to make the part itself or buy the part from the external supplier for its end products instead of blindly increasing the budget by a certain percentage and masking the cost increase traditional budgeting may not allow cost drivers within departments to be identified but zero based budgeting is a more granular process that aims to identify and justify expenditures zero based budgeting is also more involved however so the costs of the process itself must be weighed against the savings it might identify | |
what is zero based budgeting | zero based budgeting was created in the late 1960s by former texas instruments account manager peter pyhrr 2zero based budgeting starts at zero unlike traditional budgeting it justifies each expense for a reporting period zero based budgeting starts from scratch analyzing each granular need of the company instead of using the incremental budgeting increases found in traditional budgeting this essentially allows for a strategic top down approach to analyze the performance of a given project | |
what are the advantages of zero based budgeting | zero based budgeting offers several advantages including focused operations lower costs budget flexibility and strategic execution the highest revenue generating operations come into greater focus when managers think about how each dollar is spent lowered costs may result because zero based budgeting may prevent the misallocation of resources that can happen over time when a budget grows incrementally | |
what are the disadvantages of zero based budgeting | zero based budgeting has several disadvantages it s time and resource intensive the time cost involved may not be worthwhile because a new budget is developed each period using a modified budget template instead may prove more beneficial 3zbb may reward short term perspectives in the company by allocating more resources to operations with the highest revenues areas such as research and development or those that have a long term horizon may be overlooked as a result the bottom linezero based budgeting zbb justifies all expenses for each new period the process begins from a zero base analyzing every function within an organization for its needs and costs budgets are then built around what s needed for the upcoming period regardless of whether each budget is higher or lower than the one before | |
what is a zero basis risk swap zebra | a zero basis risk swap zebra is an interest rate swap agreement between a municipality and a financial intermediary a swap is an agreement with two counterparties where one party pays the other party a fixed interest rate and receives a floating rate this particular swap is considered zero risk because the municipality receives a floating rate that is equal to the floating rate on its debt obligations meaning that there is no basis risk with the trade the zebra is also known as a perfect swap or actual rate swap understanding a zero basis risk swap zebra zebras entail the municipality paying a fixed rate of interest on a specified principal amount to the financial intermediary in return they receive a floating rate of interest from the financial intermediary the floating rate received is equal to the floating rate on the outstanding debt initially issued by the municipality to the public basis risk is the financial risk that offsetting investments in a hedging strategy will not experience price changes in entirely opposite directions from each other this imperfect correlation between the two investments creates the potential for excess gains or losses in a hedging strategy thus adding risk to the position a zebra is free from such risk municipalities use these types of swaps to manage risk as the swap creates more stable cash flows if the floating rate on their debt rises the floating rate they receive from the zebra swap also rises this helps avoid the situation where interest on debt rises but those higher interest charges are not offset by higher interest payments coming in the municipality always pays the fixed interest rate in a zebra swap this is what allows them to keep their cash flows stable they know what they will be paying out and also know that the floating rate they pay will be equally offset by the floating rate they receive zebra swaps are traded over the counter otc and can be for any amount agreed on by the municipality and the financial institution counterparty example of a zero basis risk swap zebra say a municipality has 10 million in floating rate debt issued at the prime rate plus 1 with the prime rate at 2 the municipality agrees to pay a fixed rate of 3 1 to a financial intermediary for a term agreed to by the parties in exchange the municipality receives floating interest rate payments of the prime rate plus 1 from the financial institution no matter what happens with rates in the future the floating rate received will equal the floating rate the municipality needs to pay on their debt this is why it is called a zero basis risk swap one party could still end up better off though if interest rates rise this will favor the municipality because they are paying a fixed rate alternatively should interest rates fall the municipality is worse off this is because they will be paying a higher fixed rate when instead they could have just paid the lower interest rate on their debt directly while there is the possibility of ending up worse off municipalities still enter into such agreements since their main goal is to stabilize debt costs not bet on interest rate movements | |
what is a zero beta portfolio | a zero beta portfolio is a portfolio constructed to have zero systematic risk or in other words a beta of zero a zero beta portfolio would have the same expected return as the risk free rate such a portfolio would have zero correlation with market movements given that its expected return equals the risk free rate or a relatively low rate of return compared to higher beta portfolios a zero beta portfolio is quite unlikely to attract investor interest in bull markets since such a portfolio has no market exposure and would therefore underperform a diversified market portfolio it may attract some interest during a bear market but investors are likely to question whether merely investing in risk free short term treasuries is a better and cheaper alternative to a zero cost portfolio in theory building a zero investment portfolio to completely eliminate risk is unachievable understanding zero beta portfoliosbeta measures a stock s or other security s sensitivity to a price movement of a specifically referenced market index this statistic measures if the investment is more or less volatile compared to the market index it is being measured against a beta of more than one indicates that the investment is more volatile than the market while a beta less than one indicates the investment is less volatile than the market negative betas are possible and indicate that the investment moves in an opposite direction than the particular market measure for example imagine a large cap stock it s possible that this stock could have a beta of 0 97 versus the standard and poor s s p 500 index a large cap stock index while simultaneously having a beta of 0 7 versus the russell 2000 index a small cap stock index at the same time it could be possible the company would have a negative beta to a very unrelated index such as an emerging market debt index the formula for beta is as a simple example of a zero beta portfolio consider the following a portfolio manager wants to construct a zero beta portfolio versus the s p 500 index the manager has 5 million to invest and is considering the following investment choices if the investment manager allocated capital in the following way he would create a portfolio with a beta of approximately zero this portfolio would have a beta of 0 037 which would be considered a near zero beta portfolio | |
what is zero bound | zero bound is an expansionary monetary policy tool where a central bank lowers short term interest rates to zero if needed to stimulate the economy a central bank that is forced to enact this policy must also pursue other often unconventional methods of stimulus to resuscitate the economy understanding zero boundzero bound refers to the lowest level that interest rates can fall to and logic dictates that zero would be that level the main arrow in a central bank s monetary policy quiver is interest rates the bank will manipulate interest rates to either stimulate a stagnating economy or dampen an overheating one clearly there are limits especially at the lower end of the range the zero bound is the lower limit that rates can be cut to but no further when this level is reached and the economy is still underperforming then the central bank can no longer provide stimulus via interest rates economists use the term liquidity trap to describe this scenario | |
when faced with a liquidity trap alternative procedures for monetary stimulus often become necessary conventional wisdom was that interest rates could not move into negative territory meaning once interest rates reach zero or are close to zero for example 0 01 monetary policy has to be altered to continue to stabilize or stimulate the economy | the most familiar alternative monetary policy tool is perhaps quantitative easing qe this is where a central bank engages in a large scale asset buying program often involving treasuries and other government bonds not only will this keep short term rates low but it will push down longer term rates which further incentivizes borrowing 2since the great recession of 2008 and 2009 some central banks pushed the limits of zero bound below the numerical level and implemented negative rates 3 as the global economy plummeted central banks slashed rates to spur growth and spending however as the recovery remained slow central banks began entering the uncharted territory of negative rates sweden was the first country to enter this territory when in 2009 the riksbank cut the repo rate to 0 25 which pushed the deposit rate to 0 25 4 since then the european central bank ecb the bank of japan boj and a handful of others followed suit at one time or another there are instances where negative rates have been implemented during normal times switzerland is one such example through much of the 2010s its target interest rate was 0 75 which was raised to 0 50 in 2021 5 japan similarly had adopted a negative interest rate policy nirp with a target rate of 0 1 example of zero bound and negative interest rates in switzerlandthe swiss national bank snb maintains a negative interest rate policy while there are other examples of negative interest rates the swiss example is rather unique in that the country is opting to keep rates very low and negative to prevent its currency from rising too significantly in the swiss example negative interest rates are only applied to swiss franc bank balances over a certain threshold switzerland is viewed as a safe haven with low political and inflation risk other examples of negative and zero bound interest rate policies have often come about because of economic turmoil which requires cutting interest rates to stimulate the economy the swiss situation doesn t fit this scenario the snb has maintained that it must keep rates low to prevent its already relatively high currency value from going even higher a rising currency hurts the swiss export industry therefore the snb has taken a two pronged approach to control the currency the bank has actively engaged in currency market interventions to help cap the strong swiss franc and also keeps interest rates low or negative to dissuade strong speculative buying of the franc in this situation the snb will eventually adopt a zero bound strategy for moving back to 0 and above however that won t happen until the central bank feels it can raise rates without causing too significant of a rise in the currency | |
what is a zero bound interest rate | a central bank s weapons for stimulating the economy may become ineffective if short term interest rates are zero bound or hit zero at least that is the conventional wisdom but the assumption has been tested in the recent past and found faulty in three recent cases a central bank s action in pushing interest rates below zero seemed to have had modest success or at least not worsened the situation in all three cases the action was a response to a financial crisis understanding the zero bound interest ratein general short term interest rates are loans for less than one year bank certificates of deposit and treasury bills fall into this category for consumers and investors these are the ultimate safe haven investments they pay a minimal amount of interest but there s virtually no risk of the loss of principal the central bank such as the federal reserve in the u s revises lending rates periodically it may push lending rates lower in order to stimulate economic activity or hike them higher to slow an overheated economy it also sets the overnight lending rate that s the interest rate that banks and the fed charge each other for borrowing and loaning money amongst themselves for very short terms literally overnight but these adjustments by the federal reserve are incremental and the powers of the fed are limited so what happens when short term rates go to zero conventional wisdom says they can go no lower zero is the boundary beyond which monetary policy won t work after all below zero rates mean negative interest the borrower is asking for a loan and demanding to be paid for the privilege of taking the money or a bank is accepting your cash and demanding to be paid for the privilege until recently it was assumed that central banks in setting overnight lending rates did not have the ability to push the nominal interest rate beyond 0 and into negative territory and yet it happened in three cases yields on both the 1 month and 3 month u s treasury bills dipped below zero on march 25 2020 1march 2020 a flight to safetyin march of 2020 the u s federal reserve lowered the federal funds rate to a range of 0 0 25 in reaction to the economic slowdown caused by the start of the covid 19 pandemic 2yields on both one month and three month treasury bills dipped below zero on march 25 2020 a week and a half after the federal reserve cut its benchmark rate amid the turmoil investors flocked to the safety of fixed income investments even at a slight loss it was the first time that had happened in 4 years when a brief dip below zero had occurred 3the belief in this constraint was severely tested during the period following the financial crisis of 2007 2008 the recovery was sluggish and central banks including the u s federal reserve and the european central bank began quantitative easing programs which brought interest rates to record low levels 4the ecb introduced a negative rate policy effectively a charge for deposits on overnight lending in 2014 5japan s interest rate policy tested convention for decades for much of the 1990s the interest rate set by the japanese central bank the bank of japan hovered near the zero bound as the country struggled to recover from an economic crash and reduce the threat of deflation 6boj moved to negative interest rates in 2016 by charging depositing banks a fee to store their overnight funds japan s experience has been instructive for other developed markets 7crisis tacticsin extreme conditions it seems that central banks can pursue non conventional means of stimulating the economy a study by the new york fed found that as interest rates hovered near the zero bound it was important for the central bank to manage investor expectations that might mean assuring investors that interest rates would remain low for the foreseeable future and that the bank would continue various aggressive measures such as quantitative easing and purchases of bonds on the open markets in fact the fed s management of expectations made the sum more powerful than the component parts the study concluded 8 | |
what is a zero capital gains rate | a zero capital gains rate implies a tax rate of 0 on capital gains this 0 rate may be charged to individuals who sell property within a so called enterprise zone such a zone is a geographic area that has been granted special tax breaks regulatory exemptions or other public assistance in order to encourage private economic development and job creation they are used most often to promote the revitalization of a city neighborhood the zero capital gains rate can be applied by a given level of government in order to prompt investment in a given area understanding a zero capital gains ratein 2004 the u s congress passed and the president approved the working families tax relief act the act contains provisions that extend the 0 capital gains tax to certain properties being sold within certain enterprise zones enterprise zones were introduced in the u s in the 1970s in an effort to reverse the flight of people and businesses from urban centers to the suburbs the programs may be used to encourage a private company to stay in a neighborhood expand in it or relocate to it the logic behind this act is to give an incentive to individuals to invest in this area the rate is not exclusive to any one region state or municipality legislators looking to create jobs and draw investment into a community frequently enact a zero capital gains tax rate or institute other tax related incentives in that area a 2012 tax bill made the 0 capital gains rate permanent for most filers provided that are either single with a taxable income under 37 950 or couples with taxable income under 75 900 even still some of these filers face modest tax rates of 25 to 30 if they earn additional income that s taxed at ordinary rates consequently pushing their long term gains or qualified dividend income from the 0 bracket into the 15 bracket for investment income on the other hand itemized deductions may reduce ordinary income placing individuals beneath the 15 bracket and thus increasing the capital gains or dividends that are taxed at 0 this helps explain why taxpayers can have high adjusted gross incomes but still face 0 taxes on their long term capital gains example the d c enterprise zoneunder this program each enterprise zone has its own particular set of rules which may change as the legislation is extended or amended for example with the d c enterprise zone the following mandates must be satisfied | |
what is a zero cost collar | a zero cost collar is a form of options collar strategy that limits your losses to execute it you sell a short call option and buy a long put option whose prices cancel each other out the downside of this strategy is that profits are capped if the underlying asset s price increases understanding zero cost collara zero cost collar strategy involves the outlay of money on one half of the strategy which offsets the cost incurred by the other half it is a protective options strategy implemented after your long position in a stock experiences substantial gains to create the position you use a stock you own buy a protective put and sell a covered call other names for this strategy include zero cost options equity risk reversals and hedge wrappers to implement a zero cost collar you buy an out of the money put option making the seller buy the underlying at strike and simultaneously sell an out of the money call option hoping the buyer purchases the underlying at strike with the same expiration date for example imagine you purchased a stock for 100 one month later it was trading at 120 per share you want to lock in some gains so you buy a put option with a 115 strike price at 0 95 and sell a call with a 124 strike price for 0 95 in terms of dollars the put will cost 0 95 x 100 shares per contract 95 00 the call will create a credit of 0 95 x 100 shares per contract the same 95 00 therefore the net cost of this trade is zero and you ve locked in profits using the zero cost collarexecuting this strategy is not always possible as the premiums or prices of the puts and calls do not always match exactly therefore investors can decide how close to a net cost of zero they want to get choosing puts and calls that are out of the money by different amounts can result in a net credit or debit to the account the further out of the money the option the lower its premium therefore to create a collar with only a minimal cost you can choose a call option farther out of the money than the respective put option in the previous example that could be a strike price of 125 to create a collar with a small credit to the account you do the opposite choose a put option farther out of the money than the respective call in the example that could be a strike price of 114 if the collar resulted in a net cost or debit that outlay would reduce the profit on the other hand if the collar resulted in a net credit that amount is added to the total profit at the expiration of the options the maximum loss would be the difference between your purchase price and the value of the stock at the lower strike price even if the underlying stock price fell sharply the maximum gain would be the difference between the purchase price and the value of the stock at the higher strike even if the underlying stock moved up sharply if the stock closed within the strike prices then there would be no effect on its value to you because the options would expire | |
is a costless collar really costless | buying and selling the option make the collar costless although additional fees and costs might be associated with the trade | |
what is the benefit of a zero cost collar | this strategy minimizes your losses if the market takes a turn for the worse however your gains are also minimized by selling the call that will be the highest price you can get for your stock unless the buyer elects not to exercise | |
what is the risk reversal | risk reversal is the same strategy as a zero cost collar you sell a call and buy a put on a long position to minimize the risk of significant losses the bottom linethe zero cost collar is a long position strategy that protects you from significant losses if the market drops to create the collar you buy a put with a lower strike price and sell a call with a higher strike price this creates a safety net for you but also limits how much you can make on the underlying asset if the call purchaser exercises there are other strategies that traders use to manage risk reversal the fence is one of these strategies and uses three option contracts instead of the collar s two the comments opinions and analyses expressed on investopedia are for informational purposes online read our warranty and liability disclaimer for more info correction may 20 2023 a previous version of this article mistakenly stated that a trader needed to buy a call and put option to create a zero cost collar this was inaccurate as a trader buys a call and sells a put to create the collar | |
what is a zero cost strategy | the term zero cost strategy refers to a trading or business decision that does not entail any expense to execute a zero cost strategy costs a business or individual nothing while improving operations making processes more efficient or serving to reduce future expenses as a practice a zero cost strategy may be applied in a number of contexts to improve the performance of an asset | |
how zero cost strategies work | employing a zero cost strategy means there are no additional expenses to make improvements or additions to the activities of a business or other entity as mentioned above an individual or business can cut future expenses as well as simplify and streamline its current processes by using zero cost strategies zero cost trading strategies can be used with a variety of assets and investment types including equities commodities and options zero cost strategies also may involve the simultaneous purchase and sale of an asset with like costs that cancel each other out zero cost trading strategies also involve simultaneously purchasing and selling an asset with like costs that cancel each other out in an attempt to build a zero investment portfolio in investing a zero cost portfolio may see an investor build a strategy based on going long in stocks that are expected to go up in value and short stocks that are expected to fall in value a long short strategy for example an investor may choose to borrow 1 worth of google stock and sell the 1 stake in google then reinvest that money into apple after a year assuming the trade has gone as expected the investor sells apple to buy back and return the stock of google they borrowed the return on this zero cost strategy is the return on apple minus the return on google one important point to note is that this scenario ignores margin requirements examples of zero cost strategya company that seeks to increase its efficiency while also reducing costs may decide to buy a new network server to replace several older ones because of advances in technology the older servers are resold and the sum earned from the sale pays for the new server which is more efficient works faster and reduces costs going forward due to lower maintenance and energy costs a practical application of a zero cost business strategy for an individual may be to improve sales prospects for a home by decluttering all the rooms packing excess belongings into boxes and moving the boxes to the garage because the labor is free no cost is incurred one example of a zero cost trading strategy is the zero cost cylinder in this options trading strategy the investor works with two out of the money options either buying a call and selling a put or buying a put and selling a call the strike price the price at which the contract can be bought or sold is chosen so that the premiums from the purchase and sale effectively cancel each other out zero cost strategies help reduce risk by eliminating upfront costs another example of a zero cost strategy in options trading involves setting up several options trades simultaneously for which the premiums from the net credit trades offset the net debit trade premiums with such a strategy profits are determined by the performance of the assets rather than transaction costs advantages and disadvantages of zero cost strategies in tradingzero cost strategies have the main benefit of often having less expensive up front than other investing strategies as a result small capital individual investors may find them to be easier to access in addition risk in a portfolio can be managed using zero cost solutions investors for example might restrict their potential losses while keeping upside potential by using options income can be generated in a portfolio using zero cost solutions for example by selling covered calls on a stock investors can earn premiums while still owning the equity plus an individual investors needs can be met by tailoring zero cost strategies investors for example can change their risk and return profile by using different strike prices or expiration dates on options last zero cost strategies can be an effective way for new investors to learn these options because they have minimal upfront costs allow investors to acquire them to gain experience and knowledge they can use and apply for future investment decisions zero cost techniques frequently include limiting an investor s potential profit when employing options the premium earned for selling an option limits the possible profit from the deal even if the price of the underlying asset advances in the investor s favor some zero cost solutions have the potential to enhance an investor s overall risk exposure using options might carry significant risk especially if the options expire out of the money also certain zero cost techniques necessitate holding holdings for extended periods of time which might expose the investor to unanticipated changes in the market or the underlying asset zero cost strategies can be more complex than other investment strategies in addition zero cost methods frequently entail a concentrated investment in a particular asset or market segment this can reduce diversification raising overall portfolio risk finally despite their moniker zero cost techniques are not without danger if the price of the underlying asset goes against the investor s position they can still lose money especially if they use leverage or complicated financial instruments therefore a zero cost strategy is only aptly name in the initial acquisition of the investment and not the long term implications of the investment often has lower upfront costscan be used to manage riskmay still be able to generate income or cash flowmay give investors flexibility and portfolio diversificationallows for investors to buy and easily learn from in low cost environmentmay have limited upside potentialmay increase the risk exposure of a portfoliomay add unnecessary complexity to a portfoliomay not diversify a portfoliomay still result in lossesadvantages and disadvantages of zero cost strategies in corporate businessa corporate zero cost strategy can help businesses cut costs by eliminating or lowering upfront fees this can free up resources for other objectives such as expansion projects research and development or debt repayment this zero cost strategy can also enhance cash flow by lowering upfront costs risk management in a corporation can be accomplished through the deployment of zero cost strategies companies might use options or other financial instruments to hedge against price swings or other risks that could affect their profitability because these strategies may often have no upfront strings attached these strategies can provide companies with more flexibility in pursuing growth initiatives or other business opportunities in some ways companies that use zero cost strategies may have a competitive advantage over their peers especially if their peers must incur costs for the same strategies for example a company may already have access to or have already made an investment that now represents a sunk cost by leveraging this added benefit companies may enter new markets exploit new technologies or outperform others if they are able to implement zero cost strategies where others can not zero cost techniques still have the potential to limit a company s ability to invest in growth projects or other opportunities companies may be unable to make the necessary investments in technology infrastructure or talent if they reduce upfront expenses in addition a zero cost strategy may incur costs in the future the company may not be able to handle similar to the trading disadvantages discussed before some zero cost strategies might raise a company s overall risk profile using financial instruments such as options or derivatives might expose a corporation to large losses if the market turns against them some stakeholders may interpret zero cost methods as a sign of financial insecurity or a lack of long term vision this might have a negative influence on a company s reputation and capacity to attract investors partners or consumers this may be especially true for higher end products that often require substantial research and development investment prior to a product being brought to market last because the barrier of entry for a zero cost corporate strategy may be very low these strategies may be ineffective because so many market participants may be able to emulate the endeavor as there is no restriction on capital to prevent some market participants from entering the space there may be more competition and lower profit margins with these strategies may allow companies to enter strategies with reduced expensesmay improve a company s cash flowmay allow for a company to manage riskmay offer a company strategic flexibility and the ability to leave a plan with no costsmay be a competitive advantage over other companiesmight be tied to strategies with less profit potentialmay result in long term corporate expensesmay come with higher riskmay deviate from shareholder expectations or desiresmay be met with many competitors | |
what is meant by zero cost marketing | a zero cost marketing strategy stresses the use of low cost or no cost ways to promote a product service or brand the purpose of zero cost marketing is to generate greatest impact with the least amount of money this strategy often relies on free platforms to raise awareness of a company or product | |
what are zero cost materials | in many college courses instructors may implement zero cost materials for the class this type of course does not require a student to buy any type of course material to fulfill the course in these classes a study may still have a textbook but may be able to receive it for free online provided by the instructor | |
what is a zero marginal cost product | a zero cost margin refers to when each additional product made of a certain good approaches zero this occurs when there is substantial technological or computational disruption occurs and the company is able to capture strong efficiencies in how raw materials or labor are used the bottom linea zero cost strategy is an investment strategy that aims to reduce or eliminate the upfront cost of implementing an investment or business initiative the goal of a zero cost strategy is to generate returns or achieve a specific outcome without incurring significant expenses in trading this is done by executing contracts that do not incur a fee in business this is done by entering into markets or product lines that do not require upfront investments | |
what is a zero coupon bond | a zero coupon bond is an investment in debt that does not pay interest but instead trades at a deep discount the profit is realized at its maturity date when the bond is redeemed for its full face value a zero coupon bond is also known as an accrual bond investopedia laura porterunderstanding zero coupon bondssome bonds are issued as zero coupon instruments other bonds are transformed into zero coupon instruments after a financial institution strips them of their coupons and repackages them as zero coupon bonds because they offer payment at face value at maturity zero coupon bonds tend to fluctuate in price on the secondary market much more than coupon bonds 1for a company or a government a bond is a tool for borrowing money investors who purchase bonds are effectively acting as lenders to the issuing entity the investors earn a return in the form of coupon payments which are made semiannually or annually throughout the life of the bond | |
when the bond matures the bondholder is repaid an amount equal to the face value of the bond the par or face value of a corporate bond is typically stated as 1 000 | if a corporate bond is issued at a discount this means investors can purchase the bond below its par value for example an investor who purchases a bond for 920 at a discount will receive 1 000 when it reaches its maturity date the 80 return plus coupon payments are the investor s earnings for holding the bond but not all bonds have coupon payments those that do not are referred to as zero coupon bonds zero coupon bonds are issued at a deep discount and repay the par value at maturity the difference between the purchase price and the par value represents the investor s return the payment received by the investor is equal to the principal invested plus the interest earned compounded semiannually at a stated yield the interest earned on a zero coupon bond is an imputed interest meaning that it is an estimated interest rate for the bond and not an established interest rate for example a bond with a face value of 20 000 that matures in 20 years with a 5 5 yield may be purchased for roughly 6 855 at the end of the 20 years the investor will receive 20 000 the difference between 20 000 and 6 855 or 13 145 represents the interest that compounds automatically until the bond matures imputed interest is sometimes referred to as phantom interest the imputed interest on the bond is subject to federal income tax 23 therefore although no coupon payments are made on zero coupon bonds until maturity investors may still have to pay federal state and local income taxes on the imputed interest that accrues each year purchasing a municipal zero coupon bond buying zero coupon bonds in a tax exempt account or purchasing a corporate zero coupon bond that has tax exempt status are a few ways to avoid paying income taxes on these securities 1pricing a zero coupon bondthe price of a zero coupon bond can be calculated as price m 1 r n | |
where | if an investor wishes to make a 6 return on a bond with 25 000 par value that is due to mature in three years they will be willing to pay the following if the debtor accepts this offer the bond will be sold to the investor at 20 991 25 000 84 of the face value upon maturity the investor gains 25 000 20 991 4 009 which translates to 6 interest per year the greater the length of time until the bond matures the less the investor pays for it and vice versa the maturity dates on zero coupon bonds are usually long term with initial maturities of at least 10 years these long term maturity dates let investors plan for long range goals such as saving for a child s college education with the bond s deep discount an investor can put up a small amount of money that grows over time zero coupon bonds can be issued from a variety of sources including the u s treasury state and local government entities and corporations most zero coupon bonds trade on the major exchanges 1zero coupon bonds like other bonds are subject to interest rate risk if investors sell them before maturity 4 | |
how does a zero coupon bond differ from a regular bond | payment of interest or coupons is the key difference between a zero coupon and a regular bond regular bonds which are also called coupon bonds pay interest over the life of the bond and then repay the principal at maturity a zero coupon bond does not pay interest but instead trades at a deep discount giving investors a profit at maturity when they redeem the bond for its full face value 1 | |
how does an investor price a zero coupon bond | the main factor to consider is the imputed interest rate that the investor will earn at maturity the price of a zero coupon bond can be calculated with the following equation zero coupon bond price maturity value 1 required interest rate number years to maturity | |
how does the irs tax zero coupon bonds | imputed interest sometimes referred to as phantom interest is an estimated interest rate the imputed interest on the bond is subject to income tax the irs uses an accretive method when calculating the imputed interest on treasury bonds and sets a minimum interest rate relative to imputed interest and the original price discount 2the bottom linezero coupon bonds are an alternative to the better known coupon bonds that pay regular interest to their investors zero coupon bonds pay no interest but are purchased at a deep discount and repaid at full price most zero coupon bonds are long term issues 10 or more years is common they are often used to finance a long range goal such as paying for a child s college education one big thing to consider the owners of zero coupon bonds pay a phantom interest tax on the bonds earnings through the years they hold them | |
what is a zero coupon certificate of deposit cd | a zero coupon certificate of deposit cd is a type of cd that does not pay interest during its term instead zero coupon cds provide a return by being sold for less than their face value this means that an investor would receive more than their initial investment once the cd reaches its maturity date this provides the investor with a return on investment roi even though no interest payments were made prior to the maturity date by contrast traditional cds pay interest periodically throughout their term usually on an annual basis both zero coupon cds and regular cds are popular options among risk averse investors because they offer guaranteed principal protection zero coupon cds however may be especially attractive for investors who are not particularly concerned with generating cashflow during the investment term | |
how zero coupon cds work | a zero coupon cd is a cd sold at a steep discount which nevertheless pays out the full face value at maturity for instance a zero coupon cd with a face value of 100 might be sold for only 90 meaning investors would receive a profit of 10 upon reaching the end of the term the term zero coupon comes from the fact that these investments have no annual interest payments which are also referred to as coupons zero coupon cds are considered a low risk investment provided they do not withdraw their funds before the end of the term investors are guaranteed a specified return over a predetermined time period and because zero coupon cds are often issued by banks this means they are backed by the federal deposit insurance corporation fdic as long as the bank issuing the cd is insured by the fdic the main advantage of zero coupon cds is that they tend to offer slightly higher returns as compared to traditional cds however they also have their disadvantages for instance even though zero coupon cds do not pay interest each year the accrued interest earned each year is considered taxable income even though those funds are not actually received until the end of the term this means that investors must plan ahead to ensure that they have sufficient funds available in order to cover these taxes aside from their treatment the other potentially significant drawback of zero coupon cds is that they can be structured as callable investments this means that they can be called back by the issuing bank prior to maturity and then reissued at a current lower interest rate and of course zero coupon cds do not offer annual interest payments which might be inconvenient for cashflow oriented investors real world example of a zero coupon cdto illustrate consider the case of a 5 year zero coupon cd with a face value of 5 000 being sold for 4 000 to purchase the cd the investor only needs to pay 4 000 at the end of 5 years they will receive the full 5 000 in the meantime however no interest will be paid on the instrument in this case the 1 000 profit received on the investment works out to accrued income of 200 per year for 5 years from the investor s perspective this can be seen as equivalent to a 5 annual interest rate with the important caveat that those funds will not actually be received until the end of year 5 also because the accrued interest is considered taxable income the investor will need to ensure they have sufficient funds available to cover that tax expense in the years prior to the maturity date taking all of this into consideration an investor might consider this to be an attractive investment to the extent that alternative fixed income investments are yielding less than 5 and if the investor is not in need of regular cashflow during the 5 year term | |
what is a zero coupon convertible | a zero coupon convertible is a fixed income instrument that combines the features of a zero coupon bond with that of a convertible bond due to the zero coupon feature the bond pays no interest and is therefore issued at a discount to par value while the convertible feature means that bondholders have the option to convert bonds into common stock of the issuer at a certain conversion price understanding zero coupon convertibleszero coupon convertibles marry two features zero coupons and convertibles a zero coupon security is a debt instrument which does not make interest payments an investor purchases this security at a discount and receives the face value of the bond on the maturity date because there are no payments prior to maturity zero coupons have no reinvestment risk a convertible security is a debt instrument that can be converted into equity of the issuing company at a given time this is essentially an embedded put option that gives bondholders the right to convert bonds into shares and acts as a sweetener for investors who get to participate in any upside in the price of the issuer s stock a zero coupon convertible is thus a non interest paying bond that can be converted into the equity of the issuing company after the stock reaches a certain price an investor who purchases this type of security pays a discount for foregoing any interest income these bonds however tend to also benefit shareholders who can use the conversion option to profit on the exchange for shares and who maintain priority ahead of equity holders as a creditor in the case of bankruptcy if the bonds are not converted however these financial instruments have a built in option which allows the issuer to force the conversion of the bonds when the stock performs as expected capping the investor s upside potential in addition zero coupon convertibles tend to be somewhat volatile in the secondary market because the convertible option may or may not become valuable depending on how the company performs over the life of the debt instrument a zero coupon convertible can also refer to a zero coupon issued by a municipality that can be converted to an interest paying bond at a certain time before the maturity date when a municipal government issues these muni convertibles they are tax exempt but are also convertible to other bonds that may yield more 1special considerationsthe zero coupon and convertible features offset each other in terms of the yield required by investors zero coupon bonds are often the most volatile fixed income investments because they have no periodic interest payments to mitigate the risk of holding them as a result investors demand a slightly higher yield to hold them on the other hand convertibles pay a lower yield compared to other bonds of the same maturity and quality because investors may be willing to pay a premium for the convertible feature the issuer of zero coupon convertible increases the principal of the convertible security each year to compensate investors for the absence of coupons a zero coupon convertible and interest paying convertible with identical maturity and call provisions will have approximately the same conversion premium despite the difference in compensation to bondholders pricing zero coupon convertibleszero coupon convertibles are priced using option pricing models such as the black scholes model tree based models such as the binomial or trinomial model or the dividend valuation model the underlying share price assumptions about the behavior of the price assumed equity valuation and an assumed volatility level are inputs required to price the security due to the complexity of zero coupon convertibles only sophisticated investors typically trade them investopedia does not provide tax investment or financial services and advice the information is presented without consideration of the investment objectives risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors investing involves risk including the possible loss of principal | |
what is a zero coupon inflation swap zcis | a zero coupon inflation swap zcis is a type of derivative in which a fixed rate payment on a notional amount is exchanged for a payment at the rate of inflation it is an exchange of cash flows that allows investors to either reduce or increase their exposure to the changes in the purchasing power of money a zcis is sometimes known as a breakeven inflation swap understanding a zero coupon inflation swap zcis an inflation swap is a contract that transfers inflation risk from one party to another through an exchange of fixed cash flows a zcis is a basic type of inflation derivative where an income stream tied to the inflation rate is exchanged for an income stream with a fixed interest rate a zero coupon security does not make periodic interest payments during the life of the investment instead a lump sum is paid on the maturity date to the security holder likewise with a zcis both income streams are paid as one lump sum payment when the swap reaches maturity and the inflation level is known the payoff at maturity depends on the inflation rate realized over a given period as measured by an inflation index in effect the zcis is a bilateral contract used to provide a hedge against inflation while payment is typically exchanged at the end of the swap term a buyer may choose to sell the swap on the over the counter otc market prior to maturity under a zcis the inflation receiver or buyer pays a predetermined fixed rate and in return receives an inflation linked payment from the inflation payer or seller the side of the contract that pays a fixed rate is referred to as the fixed leg while the other end of the derivatives contract is the inflation leg the fixed rate is called the breakeven swap rate even though the two parties may not actually end up with even payouts the payments from both legs capture the difference between expected and actual inflation if actual inflation exceeds expected inflation the resulting positive return to the buyer is considered a capital gain as inflation rises the buyer earns more if inflation falls the buyer earns less computing the price of a zero coupon inflation swap zcis the inflation buyer pays a fixed amount known as the fixed leg this is the inflation seller pays an amount given by the change in the inflation index known as the inflation leg this is inflation leg a i e i s 1 where a reference notional of the swap r the fixed rate t the number of years i e inflation index at the end maturity date i s inflation index at the start date begin aligned text inflation leg a times text i text e div text i text s 1 textbf where a text reference notional of the swap r text the fixed rate t text the number of years text i text e text inflation index at the end maturity date text i text s text inflation index at the start date end aligned inflation leg a ie is 1 where a reference notional of the swapr the fixed ratet the number of yearsie inflation index at the end maturity dateis inflation index at the start date example of a zero coupon inflation swap zcis assume that two parties enter into a five year zcis with a notional amount of 100 million a 2 4 fixed rate and the agreed upon inflation index such as the consumer price index cpi at 2 0 when the swap is agreed upon at maturity the inflation index is at 2 5 fixed leg 100 000 000 1 024 5 1 100 000 000 1 1258999 1 12 589 990 68 inflation leg 100 000 000 0 025 0 020 1 100 000 000 1 25 1 25 000 000 00 begin aligned text fixed leg 100 000 000 times 1 024 5 1 100 000 000 times 1 1258999 1 12 589 990 68 text inflation leg 100 000 000 times 0 025 div0 020 1 100 000 000 times 1 25 1 25 000 000 00 end aligned fixed leginflation leg 100 000 000 1 024 5 1 100 000 000 1 1258999 1 12 589 990 68 100 000 000 0 025 0 020 1 100 000 000 1 25 1 25 000 000 00 the fixed leg counterparty received a lump sum payment of 12 59m at expiration but had to pay out 25 0m resulting in a net loss since the compounded inflation rate rose above 2 4 the inflation buyer profited the inflation seller would have profited if the inflation index dropped below 2 25 because at that rate they would have broken even special considerationsthe currency of the swap determines the price index used to calculate the inflation rate for example a swap denominated in u s dollars would be based on the cpi a proxy for inflation that measures price changes in a basket of goods and services in the united states meanwhile a swap denominated in british pounds would typically be based on great britain s retail price index rpi like every debt contract a zcis is subject to the risk of default from either party either because of temporary liquidity problems or more significant structural issues such as insolvency both parties may agree to put up collateral for the amount due to mitigate this risk other financial instruments that can be used to hedge against inflation risk are real yield inflation swaps price index inflation swaps treasury inflation protected securities tips municipal and corporate inflation linked securities inflation linked certificates of deposit and inflation linked savings bonds benefits of inflation swapsthe advantage of an inflation swap is that it provides an analyst with a reasonably accurate estimation of what the market considers to be the break even inflation rate conceptually it is very similar to how a market sets the price for any commodity namely the agreement between a buyer and a seller between demand and supply to transact at a specified rate in this case the specified rate is the expected rate of inflation simply put the two parties to the swap agree based on their respective takes on what the inflation rate is likely to be for the period in question as with interest rate swaps the parties exchange cash flows based on a notional principal amount this amount is not actually exchanged but instead of hedging against or speculating on interest rate risk their focus is solely on the inflation rate | |
what is a zero cost inflation swap | this hedge against inflation is called a zero coupon inflation swap because the instrument has no coupon interest payment until maturity it is sold to another investor with payment due at maturity for the inflation rate at that time | |
what is a zero coupon swap | a zero coupon swap is a contract where one party makes fixed interest payments to another and the other makes floating payments based on the agreed upon interest rate index | |
how does an inflation swap work | an inflation swap is a contract where one party agrees to pay a fixed rate and the other pays a floating rate based on an inflation index the bottom linea zero coupon inflation swap is where a debt instrument with an inflation adjusting interest payment is sold to another investor for a fixed amount delivered at maturity investors use it as a way to hedge against inflation correction aug 23 2023 a previous version of this article did not specify the point at which two investors engaged in a zero coupon inflation swap would break even content was added to reduce any confusion and address the inflation rate at which a breakeven would occur | |
what is a zero coupon inflation swap zcis | a zero coupon inflation swap zcis is a type of derivative in which a fixed rate payment on a notional amount is exchanged for a payment at the rate of inflation it is an exchange of cash flows that allows investors to either reduce or increase their exposure to the changes in the purchasing power of money a zcis is sometimes known as a breakeven inflation swap understanding a zero coupon inflation swap zcis an inflation swap is a contract that transfers inflation risk from one party to another through an exchange of fixed cash flows a zcis is a basic type of inflation derivative where an income stream tied to the inflation rate is exchanged for an income stream with a fixed interest rate a zero coupon security does not make periodic interest payments during the life of the investment instead a lump sum is paid on the maturity date to the security holder likewise with a zcis both income streams are paid as one lump sum payment when the swap reaches maturity and the inflation level is known the payoff at maturity depends on the inflation rate realized over a given period as measured by an inflation index in effect the zcis is a bilateral contract used to provide a hedge against inflation while payment is typically exchanged at the end of the swap term a buyer may choose to sell the swap on the over the counter otc market prior to maturity under a zcis the inflation receiver or buyer pays a predetermined fixed rate and in return receives an inflation linked payment from the inflation payer or seller the side of the contract that pays a fixed rate is referred to as the fixed leg while the other end of the derivatives contract is the inflation leg the fixed rate is called the breakeven swap rate even though the two parties may not actually end up with even payouts the payments from both legs capture the difference between expected and actual inflation if actual inflation exceeds expected inflation the resulting positive return to the buyer is considered a capital gain as inflation rises the buyer earns more if inflation falls the buyer earns less computing the price of a zero coupon inflation swap zcis the inflation buyer pays a fixed amount known as the fixed leg this is the inflation seller pays an amount given by the change in the inflation index known as the inflation leg this is inflation leg a i e i s 1 where a reference notional of the swap r the fixed rate t the number of years i e inflation index at the end maturity date i s inflation index at the start date begin aligned text inflation leg a times text i text e div text i text s 1 textbf where a text reference notional of the swap r text the fixed rate t text the number of years text i text e text inflation index at the end maturity date text i text s text inflation index at the start date end aligned inflation leg a ie is 1 where a reference notional of the swapr the fixed ratet the number of yearsie inflation index at the end maturity dateis inflation index at the start date example of a zero coupon inflation swap zcis assume that two parties enter into a five year zcis with a notional amount of 100 million a 2 4 fixed rate and the agreed upon inflation index such as the consumer price index cpi at 2 0 when the swap is agreed upon at maturity the inflation index is at 2 5 fixed leg 100 000 000 1 024 5 1 100 000 000 1 1258999 1 12 589 990 68 inflation leg 100 000 000 0 025 0 020 1 100 000 000 1 25 1 25 000 000 00 begin aligned text fixed leg 100 000 000 times 1 024 5 1 100 000 000 times 1 1258999 1 12 589 990 68 text inflation leg 100 000 000 times 0 025 div0 020 1 100 000 000 times 1 25 1 25 000 000 00 end aligned fixed leginflation leg 100 000 000 1 024 5 1 100 000 000 1 1258999 1 12 589 990 68 100 000 000 0 025 0 020 1 100 000 000 1 25 1 25 000 000 00 the fixed leg counterparty received a lump sum payment of 12 59m at expiration but had to pay out 25 0m resulting in a net loss since the compounded inflation rate rose above 2 4 the inflation buyer profited the inflation seller would have profited if the inflation index dropped below 2 25 because at that rate they would have broken even special considerationsthe currency of the swap determines the price index used to calculate the inflation rate for example a swap denominated in u s dollars would be based on the cpi a proxy for inflation that measures price changes in a basket of goods and services in the united states meanwhile a swap denominated in british pounds would typically be based on great britain s retail price index rpi like every debt contract a zcis is subject to the risk of default from either party either because of temporary liquidity problems or more significant structural issues such as insolvency both parties may agree to put up collateral for the amount due to mitigate this risk other financial instruments that can be used to hedge against inflation risk are real yield inflation swaps price index inflation swaps treasury inflation protected securities tips municipal and corporate inflation linked securities inflation linked certificates of deposit and inflation linked savings bonds benefits of inflation swapsthe advantage of an inflation swap is that it provides an analyst with a reasonably accurate estimation of what the market considers to be the break even inflation rate conceptually it is very similar to how a market sets the price for any commodity namely the agreement between a buyer and a seller between demand and supply to transact at a specified rate in this case the specified rate is the expected rate of inflation simply put the two parties to the swap agree based on their respective takes on what the inflation rate is likely to be for the period in question as with interest rate swaps the parties exchange cash flows based on a notional principal amount this amount is not actually exchanged but instead of hedging against or speculating on interest rate risk their focus is solely on the inflation rate | |
what is a zero cost inflation swap | this hedge against inflation is called a zero coupon inflation swap because the instrument has no coupon interest payment until maturity it is sold to another investor with payment due at maturity for the inflation rate at that time | |
what is a zero coupon swap | a zero coupon swap is a contract where one party makes fixed interest payments to another and the other makes floating payments based on the agreed upon interest rate index | |
how does an inflation swap work | an inflation swap is a contract where one party agrees to pay a fixed rate and the other pays a floating rate based on an inflation index the bottom linea zero coupon inflation swap is where a debt instrument with an inflation adjusting interest payment is sold to another investor for a fixed amount delivered at maturity investors use it as a way to hedge against inflation correction aug 23 2023 a previous version of this article did not specify the point at which two investors engaged in a zero coupon inflation swap would break even content was added to reduce any confusion and address the inflation rate at which a breakeven would occur | |
what is a zero coupon swap | a zero coupon swap is an exchange of cash flows in which the stream of floating interest rate payments is made periodically as it would be in a plain vanilla swap but where the stream of fixed rate payments is made as one lump sum payment at the time when the swap reaches maturity instead of periodically over the life of the swap understanding a zero coupon swapa zero coupon swap is a derivative contract entered into by two parties one party makes floating payments which changes according to the future publication of the interest rate index e g libor euribor etc upon which the rate is benchmarked the other party makes payments to the other based on an agreed fixed interest rate the fixed interest rate is tied to a zero coupon bond or a bond that pays no interest for the life of the bond but is expected to make one single payment at maturity in effect the amount of the fixed rate payment is based on the swap s zero coupon rate the bondholder on the end of the fixed leg of a zero coupon swap is responsible for making one payment at maturity while the party on the end of the floating leg must make periodic payments over the contract life of the swap however zero coupon swaps can be structured so that both floating and fixed rate payments are paid as a lump sum since there s a mismatch in the frequency of payments the floating party is exposed to a substantial level of default risk the counterparty that does not receive payment until the end of the agreement incurs a greater credit risk than it would with a plain vanilla swap in which both fixed and floating interest rate payments are agreed to be paid on certain dates over time valuing a zero coupon swapvaluing a zero coupon swap involves determining the present value of the cash flows using a spot rate or zero coupon rate the spot rate is an interest rate that applies to a discount bond that pays no coupon and produces just one cash flow at the maturity date the present value of each fixed and floating leg will be determined separately and summed together since the fixed rate payments are known ahead of time calculating the present value of this leg is straightforward to derive the present value of cash flows from the floating rate leg the implied forward rate must be calculated first the forward rates are usually implied from spot rates the spot rates are derived from a spot curve which is built from bootstrapping a technique that shows a sequence of spot or zero coupon rates that are consistent with the prices and yields on coupon bonds variations of the zero coupon swap exist to meet different investment needs a reverse zero coupon swap pays the fixed lump sum payment upfront when the contract is initiated reducing credit risk for the pay floating party under an exchangeable zero coupon swap the party scheduled to receive a fixed sum at the maturity date can use an embedded option to turn the lump sum payment into a series of fixed payments the floating payer will benefit from this structure if volatility declines and interest rates are relatively stable to declining it is also possible for the floating rate payments to be paid as a lump sum in a zero coupon swap under an exchangeable zero coupon swap | |
what is a zero day attack | a zero day attack also referred to as day zero is an attack that exploits a potentially serious software security weakness that the vendor or developer may be unaware of 1 the software developer must rush to resolve the weakness as soon as it is discovered in order to limit the threat to software users the solution is called a software patch zero day attacks can also be used to attack the internet of things iot a zero day attack gets its name from the number of days the software developer has known about the problem understanding a zero day attacka zero day attack can involve malware adware spyware or unauthorized access to user information users can protect themselves against zero day attacks by setting their software including operating systems antivirus software and internet browsers to update automatically and by promptly installing any recommended updates outside of regularly scheduled updates that being said having updated antivirus software will not necessarily protect a user from a zero day attack because until the software vulnerability is publicly known the antivirus software may not have a way to detect it host intrusion prevention systems also help to protect against zero day attacks by preventing and defending against intrusions and protecting data think of a zero day vulnerability as an unlocked car door that the owner thinks is locked but a thief discovers is unlocked the thief can get in undetected and steal things from the car owner s glove compartment or trunk that may not be noticed until days later when the damage is already done and the thief is long gone while zero day vulnerabilities are known for being exploited by criminal hackers they can also be exploited by government security agencies who want to use them for surveillance or attacks in fact there is so much demand for zero day vulnerabilities from government security agencies that they help to drive the market for buying and selling information about these vulnerabilities and how to exploit them zero day exploits may be disclosed publicly disclosed only to the software vendor or sold to a third party if they are sold they can be sold with or without exclusive rights the best solution to a security flaw from the perspective of the software company responsible for it is for an ethical hacker or white hat to privately disclose the flaw to the company so it can be fixed before criminal hackers discover it but in some cases more than one party must address the vulnerability to fully resolve it so a complete private disclosure may be impossible markets for zero day attacksin the dark market for zero day information criminal hackers exchange details about how to break through vulnerable software to steal valuable information in the gray market researchers and companies sell information to militaries intelligence agencies and law enforcement in the white market companies pay white hat hackers or security researchers to detect and disclose software vulnerabilities to developers so they can fix problems before criminal hackers can find them depending on the buyer the seller and the usefulness zero day information might be worth a few thousand to several hundred thousand dollars making it a potentially lucrative market to participate in 2 before a transaction can be completed the seller should provide a proof of concept poc to confirm the zero day exploit s existence for those who want to exchange zero day information undetected the tor network allows for zero day transactions to be conducted anonymously using bitcoin zero day attacks may sometimes be less of a threat than they sound governments may have easier ways to spy on their citizens and zero days may not be the most effective way to exploit businesses or individuals an attack must be deployed strategically and without the target s knowledge to have maximum effect unleashing a zero day attack on millions of computers at once could reveal the vulnerability s existence and get a patch released too quickly for the attackers to accomplish their ultimate goal real world examplesin april 2017 microsoft was made aware of a zero day attack on its microsoft word software the attackers used a malware called dridex banker trojan to exploit a vulnerable and unpatched version of the software 3 the trojan allowed the attackers to embed malicious code in word documents which automatically got triggered when the documents were opened the attack was discovered by antivirus vendor mcafee which notified microsoft of its compromised software although the zero day attack was unearthed in april millions of users had already been targeted since january in a more recent example google s chrome web browser has been subject to several attack vectors and exploits in 2022 alone google urged chrome users to update their browsers on no less than four separate occasions citing a series of zero day attacks 4 | |
why is it called a zero day attack | the term zero day or 0 day is used for a software exploit or hack referring to the fact that the developer or creator of the at risk program has only just become aware of it so they literally have zero days to fix it | |
how are zero day attacks fixed | once a developer learns of a zero day attack the exploit is usually quickly identified and fixed via a software patch or upgrade | |
what was the most famous zero day attack | while many prominent examples of zero day examples exist many cite the sony pictures hack of 2014 which utilized a previously unrecognized vulnerability to install malware unnoticed which then was used to delete or damage files involved with new films causing millions of dollars in damages and a scarred reputation for sony s apparent lack of security the attack many believe was carried out by north korean agents in response to the release of the film the interview which parodied n korea s leader kim jong un 5 | |
what is zero dividend preferred stock | a zero dividend preferred stock is a preferred share issued by a company that is not required to pay a dividend to its holder the owner of a zero dividend preferred share will earn income from capital appreciation and may receive a one time payment at the end of the investment term understanding zero dividend preferred stock | |
when a company issues stock they issue two types preferred stock and common stock preferred stock has priority over common stock when it comes to dividends and asset distribution and is therefore seen as less risky preferred stock usually does not have voting rights whereas common stock does 1 | owners of zero dividend preference shares will not receive a normal dividend but they will still maintain reimbursement priority over common shareholders in the event of a bankruptcy 1 in such an event they will get a fixed sum that was agreed upon in advance zero dividend preferred stock is comparable in some ways to zero coupon bonds though they are regarded as lower tier than bonds still they do have upper tier preference compared with common shareholders if a bankruptcy occurs this type of stock is usually backed by the issuer s assets and can be part of split capital investment trusts as a sort of share to produce fixed capital growth in a defined period | |
why zero dividend preferred stock is issued | companies that are likely to issue zero dividend preferred stock include investment trusts particularly those that may face challenges getting long term debt approved zero dividend preferred stock usually comes with a specific time period issuing zero dividend preferred stock is a way for an investment trust to raise capital that is easier than seeking a loan from a bank and oftentimes lasts much longer than a bank would typically be willing to lend for zero dividend preferred stock also comes with fewer restrictions than a bank would include in a loan a zero dividend preferred stock raises capital holds no voting rights and doesn t pay out a dividend it s an extremely attractive option for a company to issue advantages and disadvantages of zero dividend preferred stockthere are many advantages and disadvantages for an investor that come with a zero dividend preferred stock |
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