CORPORATION Definition

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CORPORATION is a type of business organization chartered by a state and given many of the legal rights as a separate entity.

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EFFECTIVE TAX RATE is the net rate a taxpayer pays on income that includes all forms of taxes. It is calculated by dividing the total tax paid by taxable income.

CONVEXITY is the price change that occurs for a bond not accounted for or predicted by modified dU1"ation. Convexity explains why price change estimates using modified duration increase in error as the yield changes, generally by more than 100 basis points. Bonds with positive (negative) convexity have increased (decreased) duration as interest rates fall (rise). Bonds with positive convexity, such as those with put options, have returns higher than those predicted by duration alone. Mortgage-backed securities and callable bonds gener­ally have negative convexity, which means that the price increase predicted by duration for a steep rate decline is too high.

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