adjusted exercise price

Adjusted exercise price

Term used in options on Ginnie Mae (Government National Mortgage Association) contracts. The final exercise price of the option accounts for the coupon rates carried on Ginnie Mae mortgages. For example, if the standard GNMA mortgage has an 9% yield, the price of GNMA pools with 13% mortgages in them is altered so that the investor receives the same yield.

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Adjusted Exercise Price

1. The strike price on an option after making allowances for stock splits. For example, suppose the exercise price for an option is $400 and the company doubles the number of shares. The adjusted exercise price would drop to $200.

2. See: Nominal Exercise Price.

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adjusted exercise price

The strike price of put and call options on Ginnie Mae pass through certificates. Ginnie Mae contracts are made up of mortgages that have interest rates that differ from the rate considered to be benchmark. These contracts must be adjusted in price to achieve that benchmark, and the exercise prices of options on the contracts must also be adjusted. This produces contracts that yield the benchmark interest rate at an exercise price.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.