DISBURSE/DISBURSEMENT Definition

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DISBURSE/DISBURSEMENT is the paying out of money to satisfy a debt or an expense.

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EQUITY MULTIPLIER (EM) shows the amount of assets owned by the firm for each equivalent monetary unit owner claims held by stockholders, i.e., the equity multiplier measures how many dollars of assets an institution supports with each dollar of capital. If a firm is totally financed by equity, the equity multiplier will equal 1.00, while the larger the number the more highly leveraged is the firm. EM compares assets with equity: large values indicate a large amount of debt financing relative to equity. EM, thus, measures financial leverage and represents both profit and risk measurement. EM affects a firm's profit because it has a multiplier impact on Return on Assets (ROA) to determine the firm's Return on Equity (ROE). EM is also a risk measure because it reflects how many assets can go into default before a company becomes insolvent. The EM ratio is best compared to industry averages. Formula: Total Assets / Net Worth

INTEREST RATE RISK results from increases and decreases in bond prices caused by changes in interest rates. When interest rates rise, the prices of bonds fall to compensate for the higher level of income demanded by investors. Bonds that carry less than the new market rate of interest must sell for lower prices. For example, if an investor purchases a bond at par value ($1,000) with a 7% coupon and interest rates rise to the point where the same bond later yields 9%, the bond will decline in price to the point where its yield to maturity is equivalent to the yield to maturity on a 9% current coupon. In other words, the investor will earn the prevail­ing market rate of 9%- by buying a bond priced at par with the 9% coupon, or by buying the bond at a discount to par with a 7% coupon.

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