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Short interest theory |
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Short interest theoryThe theory that a large interest in short positions in stocks will precede a rise in the market prices, because the short positions must eventually be covered by purchases of the stock.Short interest theory Similar MatchesInterest expenseInterest expenseInterest expense is the money the corporation or individual pays out in interest on loans. Covered interest arbitrageCovered interest arbitrageA combination of transactions on two countries' securities and exchange markets designed to profit from failure of covered interest parity. A typical set of transactions would include selling bonds in one market, using the proceeds to buy spot foreign currency and foreign bonds, and selling forward the return at a future date. See also one-way arbitrage. Interest coverInterest coverInterest cover measures the amount of interest paid by a company on its borrowings against its operating profit in the same period.The ratio shows the impact of gearing on a company's profit and loss account. If the figure is low, a small reduction in operating profits, or a rise in the cost of borrowing, can wipe out pre-tax profits. To calculate interest cover, divide the operating profits by the interest paid.Example: a company which has profits of £4m and which pays net interest of £1m, has interest cover of 4. Bond interest yieldBond interest yieldYield calculations on bonds aim to show the return on a gilt or bond as a percentage of either its nominal value or its current price. There are three types of yield calculation that are commonly used:Nominal YieldThis is calculated by dividing the annual income on the bond by its nomina or 'par' value. So the nominal yield on a £100 bond which pays 5% interest per year is 5/100 x 100 = 5%.Current or 'Running Yield'This is calculated by dividing the annual income on the bond by its current market price. So if the market price of the £100 bond dropped to £95, the current yield on the bond at that time would be 5/95 x 100 = 5.36%. Note that as the market price of a bond drops, its yield goes up.Redemption Yield'The Redemption Yield shows what the total return on a bond would be if held to its maturity date. It reflects not only the interest payments a bondholder will receive, but also the gain/loss he will make when it matures. The income element is the same 'current yield' calculation performed above. The gain/loss element is calculated by taking the difference between the current market price and the nominal value of the bond (e.g. in our example 100 - 95 = 5), dividing it by the number of years til maturity (assume 5 years for simplicity, so 5/5 = 1) and then dividing that figure by the current price of the bond (1/95 x 100 = 1.05%) The yield to redemption is the sum of the current yield (5.36%) and the capital yield (1.05%) = 6.41%. Spot interest rateSpot interest rateInterest rate fixed today on a loan that is made today. Related: Forward interest rates. Further SuggestionsInterest only mortgagesprevailing interest rate Risk Free Interest Rate Compound interest Imputed interest compound interest Any interest date Deferred interest mortgage Short interest Uncovered interest parity Lessees Interest variable interest rate gross interest Net interest cost (NIC) interest Compound interest Earnings before interest after taxes (EBIAT) Interest rate floor Consumer interest Amortizing interest rate swap Ordinary interest Interest deduction Earnings before interest, taxes, and depreciation (EBITD) simple interest Capitalized interest |
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