Bootstrapping

AAA

DEFINITION of 'Bootstrapping'

1. A procedure used to calculate the zero-coupon yield curve from market figures.

2. A situation in which an entrepreneur starts a company with little capital. An individual is said to be bootstrapping when he or she attempts to found and build a company from personal finances or from the operating revenues of the new company.

INVESTOPEDIA EXPLAINS 'Bootstrapping'

1. Because the T-bills offered by the government are not available for every time period, the bootstrapping method is used to fill in the missing figures in order to derive the yield curve. The bootstrap method uses interpolation to determine the yields for Treasury zero-coupon securities with various maturities.

2. Compared to using venture capital, bootstrapping can be beneficial because the entrepreneur is able to maintain control over all decisions. On the downside, however, this form of financing may place unnecessary financial risk on the entrepreneur. Furthermore, bootstrapping may not provide enough investment for the company to become successful at a reasonable rate.

RELATED TERMS
  1. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity ...
  2. Maturity

    The period of time for which a financial instrument remains outstanding. ...
  3. Par Yield Curve

    A graph of the yields on hypothetical Treasury securities with ...
  4. Mom And Pop

    A colloquial term for a small, independent, family-owned business. ...
  5. Zero-Coupon Bond

    A debt security that doesn't pay interest (a coupon) but is traded ...
  6. Interpolated Yield Curve - I Curve

    A yield curve derived by using on-the-run treasuries. Because ...
RELATED FAQS
  1. How does inflation affect a company's short-term investments?

    Inflation marginally erodes a company's short-term investments. Short-term investments are typically ultra-safe liquid assets, ... Read Full Answer >>
  2. What are the key differences between marketing and advertising?

    The key differences between marketing and advertising are based on how each term defines a separate function in the process ... Read Full Answer >>
  3. What is the correlation between equity risk premium and risk?

    The equity risk premium refers to the amount of additional return an investor can obtain from investing in an asset over ... Read Full Answer >>
  4. Why is a shareholder rights plan called a "poison pill?"

    To avoid being the target of a hostile takeover by a larger firm, a corporate board might adopt a defensive strategy called ... Read Full Answer >>
  5. How is it possible for a rate to be entirely risk-free?

    It is not possible for a rate to be entirely risk-free. The risk-free rate of return is a theoretical construct that underlies ... Read Full Answer >>
  6. How is the risk-free rate of interest used to calculate other types of interest rates ...

    The risk-free rate for bonds is used for pricing the yield spread as the difference between the interest rate on a bond and ... Read Full Answer >>
Related Articles
  1. Budgeting

    4 Tips For Cutting Your College Costs

    Find out how to get the life you want on the paycheck you have now.
  2. Retirement

    Bond Basics Tutorial

    Investing in bonds - What are they, and do they belong in your portfolio?
  3. Trading Strategies

    Are These the Top Monthly Dividend Stocks?

    Interested in monthly dividends? Here are two stocks to watch.
  4. Mutual Funds & ETFs

    Pros & Cons Of Bond Funds Vs. Bond ETFs

    Understanding the pros and cons of bond funds and bond ETFs will help you choose the instrument that is best for building your diversified bond portfolio.
  5. Entrepreneurship

    The Story Behind Shake Shack's Success

    A humble Madison Square Park hot dog stand grew to become a gourmet casual food powerhouse in a classic American success story.
  6. Entrepreneurship

    How Americans Can Apply For European MBA Programs

    Studying for an MBA in Europe is a great idea for Americans looking for a career boost.
  7. Mutual Funds & ETFs

    Pros and Cons: Preferred Stock ETFs vs. Bond ETFs

    A look at the differences between preferred stock ETFs and bond ETFs and when you should invest in one over the other.
  8. Entrepreneurship

    The Top 5 YouTube Millionaires

    Enterprising content creators have been able to use YouTube to rake in millions each year.
  9. Bonds & Fixed Income

    African Sovereign Debt: Risks and Rewards

    African sovereign debt offers high yields and upside — if one has the stomach for the risk.
  10. Entrepreneurship

    How Many Startups Fail And Why?

    Why do so many businesses fail? And for that matter, how many of them actually do fail?

You May Also Like

Hot Definitions
  1. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
  2. Wash Trading

    The process of buying shares of a company through one broker while selling shares through a different broker. Wash trading ...
  3. Fixed-Income Arbitrage

    An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income ...
  4. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  5. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  6. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
Trading Center