Glossary

A–Z searchable terms and definitions for the CAIA curriculum.

Absolute Priority: The rule in bankruptcy proceedings dictating that senior claims must be paid in full before junior claims receive any compensation.
Capitalization Rate (Cap Rate): A real estate valuation metric calculated by dividing a property's Net Operating Income (NOI) by its current market value. It represents the required rate of return minus the expected growth rate of NOI.
Debt-Service Coverage Ratio (DSCR): The ratio of a property's Net Operating Income to its annual debt service. Used by lenders to measure a borrower's ability to cover mortgage payments.
High Water Mark (HWM): The highest peak in value that an investment fund has reached. A GP cannot charge an incentive fee on profits until they have recovered any past losses and exceeded the HWM.
Impermanent Loss: In Decentralized Finance (DeFi), the opportunity cost experienced by a liquidity provider in an Automated Market Maker (AMM) when the price ratio of the deposited tokens diverges from when they were deposited.
Multiple on Invested Capital (MOIC): A private equity performance metric calculated by dividing the total value (realized + unrealized) by the total invested capital. Unlike IRR, it does not account for the time value of money.
Payment-in-Kind (PIK) Interest: Interest that is not paid in cash but is instead added to the principal balance of the loan, compounding over time. Often used in mezzanine debt.
Risk Parity: An institutional asset allocation strategy that allocates capital so that each asset class contributes an equal amount of volatility (risk) to the overall portfolio, often requiring the use of leverage on low-volatility assets.