Glossary
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Z
See Z tranche.
One of the oldest and most well-known insolvency prediction formulas.
The Z score, developed by Dr. Robert Altman, is a financial model
that uses historical financial data to calculate a score. The Z
score successfully predicts bankruptcy with well over 90 percent
accuracy using data from one year prior and is over 70 percent accurate
using data from as many as five years prior to bankruptcy. Other
financial models claim even higher accuracy levels.
A Z tranche is a CMO tranche. With the exception of jump Z tranches,
owners of the Z tranche receive no cash flow from underlying mortgage
collateral until the other tranches are retired. During the period
when other tranches are still outstanding, the owners of the Z tranche
receive credit for periodic interest. Those credits increase the
face value of the tranche but are not paid to the owners. The Z
bond may be, but does not have to be, the last tranche in a CMO
structure that is retired. Sometimes called an accretion bond or
an accrual bond.
See zero balance account.
The purchase of a floor (or cap) option with the proceeds realized
from simultaneous sale of a cap (or floor) option. The levels of
the floor and cap are selected so that the proceeds from the option
sold exactly offset the cost of the option purchased resulting in
a net transaction cost of zero. See cap, collar, and floor.
A type of debt security that does not pay periodic interest. Zero
coupon securities are bought and sold at prices that are less than
the par value of the securities. The discount, or difference between
the principal paid to purchase the security and the principal returned
at maturity, constitutes the investor's return.
See yield curve.
A cash management service offered by banks. A bank checking account
that can accept deposits and/or make disbursements but that is always
maintained at a zero balance. The zero balance is maintained by
transferring just enough funds from or to a concentration account
to offset each day’s activity. The concentration account is
sometimes called the parent account and the zero-balance account
is sometimes called the daughter or subsidiary account.
See zero coupon bond.
A designation given to a particular geographic area by the local
government to regulate the type of use and the density of development
permitted for properties in that area. For example, areas may be
zoned to allow only residential development.
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