An incurred expense owed to a creditor by a debtor.
The amount a debtor owes a creditor.
A limit on the shift in interest rate over one year, on an adjustable rate mortgage, protecting the borrower from a sudden increase in mortgage payments.
Example: An adjustable mortgage has a 10% rate with a 2% annual cap. For that year, the rate can only increase up to 12% or decrease to 8%.
Annual Debt Service
Required annual principal and interest payment for a loan.
Example: If a loan is $1,200 and the amortization is two (2) years, the monthly payment is $50. The annual interest is 10% (bringing the monthly payment to $55). The total annual payment, or annual debt service, is $660.
Average Rate of Return
The ratio of the earnings and cost of an investment, which considers the years of the investment. The return is divided by the years of the investment and then by the initial cost of the investment.
Example: ABC Company's initial cost for an investment was $200. The investment paid a $5 annual dividend and was sold after ten years for $400. The total return is $200 ($50 in dividends paid plus $150 in gain.) The $200 earned over ten years represents $20 per year, which is a 10% average rate of return.