IMP Briefing: Factoring Securities Part II

IMP Briefing: Factoring Securities Part II

In the first IMP Briefing on the topic of securities with factors, we discussed the factor as a principal balance remaining in percentage terms. In Part Two, we’ll look at how specific securities types employ factors.

Two faced: A factored security which pays down its principal balance has both an original and a current face amount. Original face is the nominal trading amount, and absent further purchases or sales of that security, it remains fixed. Current face is the actual (principal) investment amount (i.e. what you own), equal to original face x factor. Therefore, it varies with each pay-down cycle.

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IMP Briefing: Factoring Securities

Anyone who has ever paid down a home mortgage, auto loan or other consumer debt is familiar with the concepts of the fixed payment going toward both interest and principal reduction. Early on, it’s nearly all interest service while the principal edges down slowly. Later, as the principal balance declines, the interest nut becomes smaller, so that same payment reduces the principal balance a bit more each go round.  

The principal difference:  There is an entire class of debt securities where this same principle (if you’ll pardon the pun) applies. A factored security is distinctly different from...

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