Page 113 - PRIAA Glossary

MIXED SWAP
A product that contains characteristics of both swaps and security-based swaps. An example would be an interest rate swap that includes dependencies derived from the price of a commodity.
MODERN PORTFOLIO THEORY
A theory developed and mathematically proved by Harry Markowitz proposing how rational investors may maximise their rewards for a particular level of risk. It is a theory which emphasises the reduction of risk through portfolio diversification and the link between higher rewards and higher risk exposure.
MODIFIED BAI
A method used to calculate the modified internal rate of return. The modified internal rate of return is calculated using the future value of re-invested cash flows at the organisation’s cost of capital. It also considers the initial investment (outgoings) and assumes it’s re-invested it at the firm’s financing cost. When compared to the internal rate of return, the modified BAI produces a more accurate representation of investment evaluation.
MODIFIED DIETZ
Also known as the “time weighted rate of return”. Unlike the Dietz Method which assumed cash flows occur in the middle of the time period, the Modified Dietz Method calculates the return of an investment portfolio using time-weighted cash flows and does not assume all cash flows occur in the middle of the month.
MODIFIED DURATION
The approximate percentage change in a bond’s dirty price (which includes accrued interest) for a 100 basis points change in yield, assuming that the bond’s expected cash flow does not change when the yield changes.
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