Lesson 12 of 25 · 6 min
Market value against lending value on the same row
The first column is a price times units; the second is that product after the lender's discount.
Market value and lending value sit on the same row and describe different quantities. Market value is units times the period-end mark. Lending value is that market value times the advance rate the lender assigned to the row. Track 1 lesson 3 is the general distinction. On this page the distinction is visible five times, once per holding.
lending value = market value × advance rate
- market value
- Units × price at the 31 March mark. Public as a product of two printed facts.
- advance rate
- The percentage the lender counts. Policy, not a price.
- lending value
- What the row contributes to cover. The figure a maintenance test on lending value would use.
Calder makes the gap large. Market value is $1,840,005.00. Advance rate is 35%. Lending value is $644,001.75. The row withholds $1,196,003.25 — 65% of the mark — as a haircut. Meridian, almost the same market value at $1,838,300.00, is counted at 50% and contributes $919,150.00. Two rows of nearly identical wealth differ by $275,148.25 of lending value because the advance rates differ by 15 points.
The government-fund row runs the other way. Market value $951,390.00 at 85% becomes lending value $808,681.50. A smaller mark produces more cover than Calder's larger mark. Reading only the market column ranks Calder first. Reading the lending column ranks the government fund second and Calder fourth. The maintenance arithmetic, when it runs on lending value, uses the second ranking. The two columns are not two views of the same number; they are two numbers, and the gap between them is the haircut expressed in dollars.
Key terms
- Market value
- Units times the period-end price. Calder is $1,840,005.00. An observation-based product.
- Lending value
- Market value after the advance rate. Calder is $644,001.75. A policy-based product.
- Haircut (on a row)
- The share of market value the row does not count. On Calder, 65%, or $1,196,003.25.
Worked example
Nearly the same mark, not the same cover
Meridian and Calder at 31 March close, the two largest market-value rows.
- Meridian market value
- 12,400 × $148.25 = $1,838,300.00
- Meridian lending value
- $1,838,300.00 × 0.50 = $919,150.00
- Calder market value
- 3,100 × $593.55 = $1,840,005.00
- Calder lending value
- $1,840,005.00 × 0.35 = $644,001.75
- Market-value gap, Calder minus Meridian
- $1,705.00
- Lending-value gap, Calder minus Meridian
- −$275,148.25
Calder is $1,705 richer on the mark and $275,148 poorer as collateral. The advance rate, not the price, decided which row carries more cover.
Check yourself
Calder's market value is $1,840,005.00 at a 35% advance rate. What is its lending value, and why is that figure smaller than the government fund's $808,681.50 on only $951,390.00 of market value?
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Educational only. Nothing in this lesson is investment, legal or tax advice, or a recommendation to enter into any transaction. Figures are illustrative and computed from the inputs stated in the lesson.