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A concept often used with HELs and manufactured-housing transactions to describe a series of increasing monthly prepayment speeds, prior to a plateau, on which the expected average life of a security is based.
Random number
An observation drawn from a uniform distribution.
Random number generator
An algorithm that produces uniformly distributed random numbers between 0 and 1.
Random variable
A quantity whose future outcomes are uncertain.
Random walk
A time series in which the value of the series in one period is the value of the series in the previous period plus an unpredictable random error.
The difference between the maximum and minimum values in a dataset.
Rate duration 
A fixed-income instrument’s or portfolio’s sensitivity to a change in key maturity, holding constant all other points along the yield curve.
Ratio scales
A measurement scale that has all the characteristics of interval measurement scales as well as a true zero point as the origin.
Ratio spread
An option strategy in which a long position in a certain number of options is offset by a short position in a certain number of other options on the same underlying, resulting in a risk-free position.
Rational efficient markets formulation
See market efficiency.
Rate covenant
A covenant in the financing proceedings requiring the charging of rates or fees for the use of specified facilities or operations at least sufficient to achieve a stated minimum coverage.
Rate reset
The adjustment of the interest rate on a floating-rate security according to a prescribed formula.
Designations used by credit rating agencies to give relative indications as to opinions of credit quality.
Reserve Bank of India
Recommendations for Central Counterparties
Real estate
Interests in land or structures attached to land.
Real estate investment trusts
Publicly traded equities representing pools of money invested in real estate properties and/or real estate debt. Synonyms: REITs
Real option
An option involving decisions related to tangible assets or processes.
Real risk-free interest rate
The single-period interest rate for a completely risk-free security if no inflation were expected.
Realizable value
With reference to assets, the amount of cash or cash equivalents that could currently be obtained by selling the asset in an orderly disposal; with reference to liabilities, the undiscounted amount of cash or cash equivalents expected to be paid to satisfy the liabilities in the normal course of business. Synonyms: settlement value
Real yield
For an inflation-indexed security, the yield based on the payment stream in constant dollars, i.e., before adjustment by the index ratio.
Adjusting the actual portfolio to the current strategic asset allocation because of price changes in portfolio holdings. Also: revisions to an investor’s target asset class weights because of changes in the investor’s investment objectives or constraints or because of changes in capital market expectations or to mean tactical asset allocation.
Rebalancing ratio 
A quantity involved in reestablishing the dollar duration of a portfolio to a desired level, equal to the original dollar duration divided by the new dollar duration.
With reference to index construction, to change the time period used as the base of the index.
Recallability trap
The tendency of forecasts to be overly influenced by events that have left a strong impression on a person’s memory.
Receivables turnover
An activity ratio equal to revenue divided by average receivables.
Receiver swaption
A swaption that allows the holder to enter into a swap as the fixed-rate receiver and floating-rate payer.
A broad-based economic downturn, conventionally defined as two successive quarterly declines in GDP.
Reciprocal immunity doctrine
The doctrine that many believe provides the constitutional basis for the exemption from federal taxation of the interest earned on municipal securities. The doctrine holds that the states are immune from taxation by the federal government and vice versa. The advocates of tax-exemption for bonds believe that a tax on the interest income a taxpayer receives constitutes a tax on the issuer of the bonds.
Record date
The date for determining the owner entitled to the next scheduled payment of principal or interest on a mortgage security.
Red Herring
A preliminary official statement.
The paying off or buying back of a bond by the issuer; also, repurchase of investment trust units by the trustee, at the bid price.
Redemption date (maturity date)
The redemption date is the day when the bond’s term ends and the principal amount of a security is payable along with any final interest payment. Also called maturity date. In cases of a callable bond, it may be the call date.
Redemption premium
The amount by which the "call" price of a security exceeds its principal, or par value.
Redemption provisions
Another term for call provisions. Actions taken to pay the principal amount prior to the stated maturity date, in accordance with the provisions for “call” stated in the proceedings and the securities.
Redemption yield
Annual percentage return received by investor if the bond is held to maturity, a calculation often used to compare bonds. Also called yield to maturity (YTM). The redemption yield on the bond is a function of the price paid for the bond (which will almost always differ from its face, or par, value), the coupon rate and the length of time to go to maturity. The really important aspect of the redemption yield is that it is the single number expressed as a percentage that encapsulates all aspects of a bond - where the price stands relative to par, whether the bond is high coupon or low coupon (or indeed zero coupon), and its number of years to maturity. It can therefore be used to compare any bond from any issuer with any other bond from any other issuer.
Reference entity 
An entity, such as a bond issuer, specified in a derivatives contract.
Sale of a new issue, the proceeds of which are to be used, immediately or in the future, to retire an outstanding issue by, essentially, replacing the outstanding issue with the new issue. Refundings are done to save interest cost, extend the maturity of the debt, or to relax existing restrictive covenants.
Registered bond
A bond whose owner is registered with the issuer or its agent. Transfer of ownership can only be accomplished if the bonds are properly endorsed by the registered owner.
Registered owner
The name in which a security is registered, as stated on the certificate or on the books of the paying agent. P&I payments are made to the registered owner on the record date.
Reinvestment risk
The risk that interest income or principal repayments will have to be reinvested at lower rates in a declining interest rate environment.
With reference to a time series, the underlying model generating the time series.
Regression coefficients
The intercept and slope coefficient(s) of a regression.
Regulatory risk
The risk associated with the uncertainty of how derivative transactions will be regulated or with changes in regulations.
Reinvestment risk 
The risk of reinvesting coupon income or principal at a rate less than the original coupon or purchase rate.
Rejection point
A value against which a computed test statistic is compared to decide whether to reject or not reject the null hypothesis. Synonyms: critical value
Relative dispersion
The amount of dispersion relative to a reference value or benchmark.
Relative economic strength forecasting approach
An exchange rate forecasting approach that suggests that a strong pace of economic growth in a country creates attractive investment opportunities, increasing the demand for the country’s currency and causing it to appreciate.
Relative frequency
With reference to an interval of grouped data, the number of observations in the interval divided by the total number of observations in the sample.
Relative return objective
A return objective stated as a return relative to the portfolio benchmark’s total return.
Relative strength indicators
Valuation indicators that compare a stock’s performance during a period either to its own past performance or to the performance of some group of stocks. Synonyms: RSTR indicators
Relative valuation models
A model that specifies an asset’s value relative to the value of another asset.
Beneficiaries of a trust; having a claim on the residue.
A formal re-underwriting of a bond for which the form or structure is being changed. Most commonly used in connection with changing variable rate to fixed-rate financings — typically because “the construction phase is over"; or rates are at a level the issuer feels comfortable with for the long term; or because of indenture requirements (probably relating to arbitrage).
Remarketing agent
A dealer or dealer bank responsible for the pricing of variable-rate demand bonds. The remarketing agent periodically sets and resets the interest rate of a VRDN. If bonds are tendered, the remarketing agent will use his/her best efforts to sell tendered bonds to another purchaser.
Remuneration Committee
REMIC (Real Estate Mortgage Investment Conduit)
A pass-through investment vehicle which issues multiclass mortgage-backed securities that have certain tax and accounting advantages for issuers and investors due to the Tax Reform Act of 1986. Currently, most CMOs are issued in REMIC form and the terms "REMIC" and "CMO" are now used interchangeably.
Agreements made by a company in bankruptcy under which a company’s capital structure is altered and/or alternative arrangements are made for debt repayment; U.S. Chapter 11 bankruptcy. The company emerges from bankruptcy as a going concern.
Replacement value
The market value of a swap.
Report format
With respect to the format of a balance sheet, a format in which assets, liabilities, and equity are listed in a single column.
Repurchase agreement
A contract involving the sale of securities, such as Treasury instruments, coupled with an agreement to repurchase the same securities at a later date.
Repurchase yield 
The negative of the expected percent change in number of shares outstanding in the Grinold–Kroner model.
Reputational risk
The risk that a company will suffer an extended diminution in market value relative to other companies in the same industry due to a demonstrated lack of concern for environmental, social, and governance risk factors.
Repurchase agreements (repos)
Repurchase agreements (repos) are widely used as a source of financing by primary dealers, other securities firms, banking firms, and institutional investors, among others. A repo involves an agreement between a seller and a buyer, typically of U.S. government securities but increasingly involving other types of securities and financial assets as well, whereby the seller "sells" the securities to the buyer, with a simultaneous agreement to repurchase the securities at an agreed upon price at a future point in time. A reverse repurchase agreement is the flip side of the transaction, with the buyer "buying" the securities from the seller and simultaneously agreeing to resell them at a future point in time. The outstanding volume of repos and reverse repos is enormous.
Request for proposals
Widely referred to as an “RFP.” A series of questions sent by a potential issuer to evaluate the qualification of potential underwriters of their negotiated issues. Written and sometimes oral (the “orals”) responses to questions may include a marketing plan for the bonds, the plan of finance, and estimated costs. Also referred to as “Request for Qualifications,” or “RFQs.”
Required rate of return
The minimum rate of return required by an investor to invest in an asset, given the asset’s riskiness.
Required return
With reference to the investment policy statement, a return objective relating to the level of return that will be adequate to satisfy a need. Synonyms: return requirement
Resampled efficient frontier
The set of resampled efficient portfolios.
Resampled efficient portfolio
An efficient portfolio based on simulation.
Residential mortgage backed securities (RMBS)
Mortgage backed securities represent an ownership interest in mortgage loans made by financial institutions (savings and loans, commercial banks or mortgage companies) to finance the borrower's purchase of a home or other residential real estate as opposed to commercial real estate. Mortgage securities are created when these loans are packaged, or “pooled,” by issuers or servicers for sale to investors. As the underlying mortgage loans are paid off by the homeowners, the investors receive payments of interest and principal. Investors may purchase mortgage securities when they are issued or afterward in the secondary market. Investments in mortgage securities are typically made by large institutions when the securities are issued. These securities may ultimately be redistributed by dealers in the secondary market.
Residual autocorrelations
The sample autocorrelations of the residuals.
Residual claim
The owners’ remaining claim on the company’s assets after the liabilities are deducted.
Residual dividend approach
A dividend payout policy under which earnings in excess of the funds necessary to finance the equity portion of a company’s capital budget are paid out in dividends.
Residual income
Earnings for a given time period minus a deduction for common shareholders’ opportunity cost in generating the earnings. Synonyms: economic profit abnormal earnings
Residual income model
A model of stock valuation that views intrinsic value of stock as the sum of book value per share plus the present value of the stock’s expected future residual income per share. Synonyms: RIM discounted abnormal earnings model Edwards-Bell-Ohlson model
Residual loss
Agency costs that are incurred despite adequate monitoring and bonding of management.
In a CMO, the residual is that tranche which collects any cash flow from the collateral that remains after obligations to the other tranches have been met.
With respect to trusts, the funds remaining in a trust when the last income beneficiary dies.
Retail method
An inventory accounting method in which the sales value of an item is reduced by the gross margin to calculate the item’s cost.
The portion of a pension fund’s liabilities associated with retired workers.
Return objective 
An investor objective that addresses the required or desired level of returns.
Return on assets
A profitability ratio calculated as net income divided by average total assets; indicates a company’s net profit generated per dollar invested in total assets. Synonyms: ROA
Return on common equity
A profitability ratio calculated as (net income – preferred dividends) divided by average common equity; equal to the return on equity ratio when no preferred equity is outstanding. Synonyms: ROCE
Return on equity
A profitability ratio calculated as net income divided by average shareholders’ equity. Synonyms: ROE
Return on invested capital
The after-tax net operating profits as a percent of total assets or capital. Synonyms: ROIC
Return on total capital
A profitability ratio calculated as EBIT divided by the sum of short- and long-term debt and equity.
Returns-based benchmarks
Benchmarks that are constructed using (1) a series of a manager’s account returns and (2) the series of returns on several investment style indexes over the same period. These return series are then submitted to an allocation algorithm that solves for the combination of investment style indexes that most closely tracks the account’s returns.
Retail investors
Individual investors who typically invest smaller amounts of money in the markets than institutional investors.
Returns-based style analysis
An approach to style analysis that focuses on characteristics of the overall portfolio as revealed by a portfolio’s realized returns.
The process of valuing long-lived assets at fair value, rather than at cost less accumulated depreciation. Any resulting profit or loss is either reported on the income statement and/or through equity under revaluation surplus.
The amount charged for the delivery of goods or services in the ordinary activities of a business over a stated period; the inflows of economic resources to a company over a stated period.
Revenue bond
A municipal bond payable from income derived from tolls, charges or rents paid by users of the facility constructed with the proceeds of the bond issue.
Reverse optimization 
A technique for reverse engineering the expected returns implicit in a diversified market portfolio.
Reverse stock split
A reduction in the number of shares outstanding with a corresponding increase in share price, but no change to the company’s underlying fundamentals.
Revolving credit agreements
The strongest form of short-term bank borrowing facilities; they are in effect for multiple years (e.g., 3–5 years) and may have optional medium-term loan features. investors as though they were risk neutral.
Revolving trust
A securitization structure frequently used for assets with high turnover rates, such as credit card, trade and dealer floor-plan receivables. It is characterized by having a revolving period and an accumulation (or controlled-amortization) period.
The sensitivity of the option price to the risk-free rate.
Ring fencing
A term that essentially represents the series of steps involved in securitizations where assets are made "bankruptcy remote" or "bankruptcy proof." The goal of ring fencing is to enable such assets to stand independent of any bankruptcy or reorganization of the ultimate or immediate parent of the entity that holds the relevant assets.
A measure of the degree of uncertainty and/or of financial loss inherent in an investment or decision. There are many different risks, including: call risk—The risk that declining interest rates may accelerate the redemption of a callable security, causing an investor’s principal to be returned sooner than expected. As a consequence, investors may have to reinvest their principal at a lower rate of interest. Credit risk—The risk that the issuer of the bonds will be unable to make debt service payments due to a weakening of their credit. event risk—The risk that an issuer’s ability to make debt service payments will change because of unanticipated changes, such as a corporate restructuring, a regulatory change or an accident, in their environment. Market risk—Potential price fluctuations in a bond due to changes in the general level of interest rates. Underwriting risk—The risk of pricing and underwriting securities and then ultimately not being able to sell them to the investor.
Risk aversion
The degree of an investor’s inability and unwillingness to take risk.
Risk budget
The desired total quantity of risk; the result of risk budgeting.
Risk budgeting
The establishment of objectives for individuals, groups, or divisions of an organization that takes into account the allocation of an acceptable level of risk.
Risk exposure
A source of risk. Also, the state of being exposed or vulnerable to a risk.
Risk governance
The setting of overall policies and standards in risk management
Risk management
The process of identifying the level of risk an entity wants, measuring the level of risk the entity currently has, taking actions that bring the actual level of risk to the desired level of risk, and monitoring the new actual level of risk so that it continues to be aligned with the desired level of risk.
Risk objective 
An investor objective that addresses risk.
Risk premium
The expected return on an investment minus the risk-free rate.
Risk premium approach
An approach to forecasting the return of a risky asset that views its expected return as the sum of the risk-free rate of interest and one or more risk premiums.
Risk profile
A detailed tabulation of the index’s risk exposures.
Risk tolerance
The capacity to accept risk; the level of risk an investor (or organization) is willing and able to bear.
Risk tolerance function
An assessment of an investor’s tolerance to risk over various levels of portfolio outcomes.
Risk-neutral probabilities
Weights that are used to compute a binomial option price. They are the probabilities that would apply if a risk-neutral investor valued an option.
Risk-neutral valuation
The process by which options and other derivatives are priced by treating investors as though they were risk neutral. Robust
The quality of being relatively unaffected by a violation of assumptions.
Robust standard errors
Standard errors of the estimated parameters of a regression that correct for the presence of heteroskedasticity in the regression’s error term.
Roll return
The component of the return on a commodity futures contract that comes from rolling long futures positions forward through time. Synonyms: roll yield
Rolling return 
The moving average of the holding period returns for a specified period (e.g., a calendar year) that matches the investor’s time horizon.
Root mean squared error
The square root of the average squared forecast error; used to compare the out-of-sample forecasting performance of forecasting models. Synonyms: RMSE
Round lot
Block of bonds $100,000 or higher or for shares, multiples of minimum lot size.
Roy’s safety first criterion
A criterion asserting that the optimal portfolio is the one that minimizes the probability that portfolio return falls below a threshold level.
Review Panel
Recommendations for Securities Settlements Systems
Running yield or simple yield or income yield
The coupon of a bond expressed as a percent of the price of the bond. An example is a 20-year bond with a coupon of 6% selling at 120 has a simple yield of 5% (6 x 100/120).
Rule of 72
The principle that the approximate number of years necessary for an investment to double is 72 divided by the stated interest rate.
in Company documents means the laws, rules and regulations applicable to the Company as promulgated and issued by the UAE Federal Government, the Emirate of Dubai, the UAE Central Bank, the Securities and Commodities Authority, the Dubai Financial Market and any other governmental or regulatory body with oversight of the Company from time to time or the Constitutional Documents of the Company.
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