With the majority of CDOs being backed by mortgages, the principal-only tranche has a known future cash flow, but at a variable rate of return, while the interest-only tranche has both an unknown cash flow and an unknown rate of return on that cash flow.
The greater the spread between the high-interest debt and the rate of return on investment, the greater the financial advantage for paying off the debt first.
When you invest in a project your primary concern is that your rate of return exceed the rate of interest that you are paying.
They could, for example, slow down the pace of lengthening the duration on their portfolios or lower the rates of return on some of the interest rate products they sell.
Mr Donaldson has forced the exchange to release details of savings schemes in which Mr Grasso was able to earn 8% interest well above the rate of return on American Treasury bonds on some income he chose to defer.
When you do not believe you can earn rates of return greater than the rate of interest on your mortgage from your investments.
Mr Donaldson has also asked for details of a savings scheme in which Mr Grasso appears to have been able to earn 8% interest well above the rate of return on American Treasury bonds on any income he has chosen to defer.
It indicates that the government is a higher risk for default, and lenders will subsequently demand a higher rate of return with higher interest rates.
As Forbes first reported in February, Harvard's fully invested and overly illiquid endowment, coupled with the use of interest-rate and total-return swaps, caused Mendillo to scramble for cash last fall.
While planning is based on the past and projected performance of assets, the risk must be considered, except when it comes to assets that produce a guaranteed rate of return or guaranteed interest.
The Bank of England wants its ECTR - which provides relatively cheap loans, at a minimum interest rate of 0.75%, in return for pretty much any old assets or collateral the banks can provide - to be seen as mainstream funding, not stigmatised emergency funding.
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Series I bonds consist of two components: a fixed interest rate return and an adjustable inflation-linked return, making them somewhat similar to TIPS. The fixed rate never changes, but the inflation return rate is adjusted every six months and can also be negative (which of course brings your total return down).
In turn, that lower interest rate should help Kilroy realize a return on the project of about 7%, better than the below-5% return that many investors are getting by acquiring existing buildings.
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Following the Icelandic crisis the council renegotiated the terms of the Dexia investment, accepting a lower interest rate in return for the government guarantees.
Because the dividends on Laffer Shares would vary depending upon GDP growth rates, the markets would discount the expected cash flows at an equity rate of return, which is considerably higher than the interest rate on government bonds.
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This was a clever move ahead of Thursday's interest rate cut which meant savers getting even less return on their money.
If you need the interest from these investments for income, you can probably get a better rate of return from other investments.
The tradeoff here is that you typically give up a bit in the way of stated interest rates in return for the option to raise your rate.
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This tax benefit may well be outweighed by a lower rate of return, since the extra administrative costs could prevent providers offering competitive interest rates.
Stournaras expressed the hope that the country will be able to return to markets at the end of next year and pay an interest rate of below 6 percent for its 10-year bonds, as both Ireland and Portugal, another two bailed-out countries, have done recently.
When averaged, the rate of return on public and private funds would allow the bank to make low interest loans.
Many developing economies also have positive real interest rates, meaning that you can earn a return on their bonds over and above the rate of inflation.
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The government would put in funding at a very low interest rate to the green bank and private investors would put in matching funds and receive a reasonable rate of return.
Eventually, when interest rates elevate their multi-billion dollar investment portfolios, state mandated reserves, must throw off a higher rate of return.
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