Long-Dated Asset

AAA

DEFINITION of 'Long-Dated Asset'

A class of income-generating assets where the revenue stream is generated over a long period of time. Residential mortgages and 20-year bonds are examples of long-dated assets.

INVESTOPEDIA EXPLAINS 'Long-Dated Asset'

Long-dated assets can often lead to problems for holders, especially if holder's goal is to generate enough income to pay off interest-rate-sensitive liabilities. If interest rates increase, the holder's loan payments also increase; however, the income generated from the long-dated asset remains the same.

For example, banks generally hold-long dated assets such as residential mortgages. Banks also have interest-sensitive liabilities such as demand deposits from savings accounts. Since the income generated by mortgages tends to be steady over the life of the loan, the amount of money the bank receives from mortgages is limited. However, cash outflows from demand deposits are not generally limited and can potentially skyrocket if interest rates rise high enough. The bank could end up in financial distress if it does not have enough revenue to cover the interest payments to depositors.

RELATED TERMS
  1. Maturity

    The period of time for which a financial instrument remains outstanding. ...
  2. Demand Deposit

    Funds held in an account from which deposited funds can be withdrawn ...
  3. Maturity Mismatch

    The tendency of a business to mismatch its balance sheet by possessing ...
  4. Asset

    1. A resource with economic value that an individual, corporation ...
  5. Current Assets

    1. A balance sheet account that represents the value of all assets ...
  6. Current Liabilities

    A company's debts or obligations that are due within one year. ...
Related Articles
  1. 6 Asset Allocation Strategies That Work
    Options & Futures

    6 Asset Allocation Strategies That Work

  2. Long-Term Investing: Hot Or Not?
    Investing Basics

    Long-Term Investing: Hot Or Not?

  3. Asset Allocation In A Bond Portfolio
    Bonds & Fixed Income

    Asset Allocation In A Bond Portfolio

  4. Common Bond-Buying Mistakes
    Options & Futures

    Common Bond-Buying Mistakes

comments powered by Disqus
Hot Definitions
  1. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  2. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  3. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  4. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  5. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
  6. Earnings Before Interest After Taxes - EBIAT

    A financial measure that is an indicator of a company's operating performance. EBIAT, which is equivalent to after-tax EBIT ...
Trading Center