Ability to pay

Definition:

Refers to the borrower's ability to make interest and principal payments on debts. See: Fixed charge coverage ratio.
In context of municipal bonds, refers to the issuer's present and future ability to create sufficient tax revenue to fulfill its contractual obligations, accounting for municipal income and property values.
In context of taxation, notion that tax rates should be determined according to income or wealth.

Investing Essentials


Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University

Term of the Day

Ratio Strategy

A strategy in which one has an unequal number of long secruities and short sercurities. Normally, it implies a preponderance of short options over either long options or long stock.

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