Guide to Analysing Companies

Accrued interest
The interest that has been earned, but not yet paid, on a
bond or loan. Interest on bonds is paid half yearly or some-
times quarterly. When a bond is sold, the buyer pays the seller
the market price, plus the accrued interest that the buyer will
receive at the end of the relevant period. Accrued interest is
usually calculated on the basis of a 30-day month for corpor-
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ate bonds and municipal bonds, but on the actual
number of days in the month for government bonds.
ACH
See automated clearing house.
Actual
The physical commodity or security underlying a
futures contract. What, in other words, is delivered to the
holder when the contract is completed or matures – be it a bar
of gold or an interest rate contract on a government bond.
Actuarial surplus
See overfunding.
Actuary
A mathematician employed to calculate how much an insur-
ance company should charge to cover all sorts of risks, in-
cluding life assurance, and how much to set aside as
reserves just in case. Most actuaries rely on tables that set out
the probability of death occurring within prescribed periods of
time. This helps them to assess an insurer’s potential liabili-
ties and the premiums needed to cover certain types of risk.
Adjustable-rate mortgage
A mortgage with a rate of interest that varies over time
and in line with market rates. In the UK, most mortgages are
adjustable-rate mortgages (arms) and move up or down with
base rates set by the bank of england. During periods of
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ADJUSTABLE-RATE MORTGAGE
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low interest rates, this leads to lower costs for borrowers, but it
often pushes up house prices in places where the supply is
limited. House buyers in countries within the euro zone,
though fewer proportionately than in the UK, have benefited
because interest rates set by the european central bank
have been lower than many experienced when borrowing in
their former domestic currencies. Historically, the bulk of mort-
gages in the United States have been at a fixed rate.
When interest rates are volatile, financial institutions some-
times get into trouble because they are unable to match their
floating-rate
liabilities
against their fixed-rate
assets. To guard against such risks, most banks and mortgage
companies try to issue long-term bonds that mature at the
same time as the loans that they are granting.