Adjustable rate

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Adjustable rate

Applies mainly to convertible securities. Refers to interest rate or dividend that is adjusted periodically, usually according to a standard market rate outside the control of the bank or savings institution, such as that prevailing on Treasury bonds or notes. Typically, such issues have a set floor or ceiling, called caps and collars that limits the adjustment.

Adjustable Rate

An interest rate on a loan or convertible security that changes periodically. For example, an adjustable rate mortgage has a certain interest rate that changes with varying frequency. The frequency of the change is called the adjustment rate. Usually, the adjustable rate is set according to some outside benchmark; for example, a loan might set the interest rate at LIBOR + 1%. An advantage of adjustable rate loans is the fact that one's interest rate might fall over time; this is a particular advantage if prevailing interest rates are high at the time of the loan. A disadvantage to adjustable rates is the uncertainty associated with them: one's payments on the loan generally rise or fall.
References in periodicals archive ?
What some cities have found, however, is that variable rates often do not eliminate their problems and, worse, can breed additional, more costly problems.
A community may implement variable rates for any number of reasons.
A community can implement variable rates in a variety of ways.
Many cities with tight budgets are looking at variable rates as a potential way to generate revenue.
Some cities use variable rates to stop small waste generators from subsidizing the larger ones.
Some municipalities use variable rates because they help to force people to recycle, and thus can help achieve state or local waste reduction goals.
Many communities turn to variable rates to decrease waste volumes when there is a disposal capacity shortage or a crisis event, such as the sudden closure of a landfill.
But in-depth analysis often shows that these reductions were due to the start-up of recycling, yard waste collection, and/or waste collection education programs, not variable rates.
To find out whether variable rates are best for your community, feasibility study should be conducted.
In the past year, TEP has financed nearly $580 million of tax-exempt debt on a fixed-rate, unsecured basis reducing both the company's exposure to variable rates and refinancing requirements over the next five years by one-half.
Proceeds from this issuance will be used to refinance $200 million of outstanding variable rate debt.
Letters of credit supporting the 1981 variable rate bonds, which are collateralized by first and second mortgage bonds, will be eliminated upon redemption of the 1981 bonds.

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