See Z tranche.
One of the oldest and most well-known insolvency prediction formulas. The Z score, developed by Dr. Robert Altman, is a financial model that uses historical financial data to calculate a score. The Z score successfully predicts bankruptcy with well over 90 percent accuracy using data from one year prior and is over 70 percent accurate using data from as many as five years prior to bankruptcy. Other financial models claim even higher accuracy levels.
A Z tranche is a CMO tranche. With the exception of jump Z tranches, owners of the Z tranche receive no cash flow from underlying mortgage collateral until the other tranches are retired. During the period when other tranches are still outstanding, the owners of the Z tranche receive credit for periodic interest. Those credits increase the face value of the tranche but are not paid to the owners. The Z bond may be, but does not have to be, the last tranche in a CMO structure that is retired. Sometimes called an accretion bond or an accrual bond.
See zero-balance account.
Zero cost collar
The purchase of a floor (or cap) option with the proceeds realized from simultaneous sale of a cap (or floor) option. The levels of the floor and cap are selected so that the proceeds from the option sold exactly offset the cost of the option purchased resulting in a net transaction cost of zero. See cap, collar and floor.
Zero coupon bond
A type of debt security that does not pay periodic interest. Zero coupon securities are bought and sold at prices that are less than the par value of the securities. The discount, or difference between the principal paid to purchase the security and the principal returned at maturity, constitutes the investor's return.
Zero coupon yield curve
See yield curve.
Zero-balance account (ZBA)
A cash management service offered by banks. A bank checking account that can accept deposits and/or make disbursements but that is always maintained at a zero balance. The zero balance is maintained by transferring just enough funds from or to a concentration account to offset each day’s activity. The concentration account is sometimes called the parent account and the zero-balance account is sometimes called the daughter or subsidiary account.
See zero coupon bond.
A designation given to a particular geographic area by the local government to regulate the type of use and the density of development permitted for properties in that area. For example, areas may be zoned to allow only residential development.