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83 Cards in this Set
- Front
- Back
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zero coupon bond
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A bond that makes no coupon payments-- thus initially priced at a deep discount.
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yield to maturity (YTM)
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The rate required in the market on a bond.
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Treasury yield curve
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A plot of the yields on Treasury notes and bonds relative to maturity.
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term structure of interest rates
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The relationship between nominal interest rates on default-free-- pure discount securities and time to maturity; that is-- the pure time value of money.
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taxability premium
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The portion of a nominal interest rate or bond yield that represents compensation for unfavorable tax status.
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SuperDOT system
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An electronic NYSE system allowing orders to be transmitted directly to the specialist.
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sunk cost
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A cost that has already been incurred and cannot be removed and therefore should not be considered in an investment decision.
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straight voting
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A procedure in which a shareholder may cast all votes for each member of the board of directors.
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stated interest rate
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The interest rate expressed in terms of the interest payment made each period. Also-- quoted interest rate.
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stand-alone principle
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The assumption that evaluation of a project may be based on the project's incremental cash flows.
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specialist's post
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A fixed place on the exchange floor where the specialist operates.
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specialist
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A NYSE member acting as a dealer in a small number of securities on the exchange floor; often called a market maker.
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sinking fund
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An account managed by the bond trustee for early bond redemption.
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secondary market
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The market in which previously issued securities are traded among investors.
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registered form
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The form of bond issue in which the registrar of the company records ownership of each bond; payment is made directly to the owner of record.
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real rates
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Interest rates or rates of return that have been adjusted for inflation.
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proxy
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A grant of authority by a shareholder allowing another individual to vote his/her shares.
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protective covenant
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A part of the indenture limiting certain actions that might be taken during the term of the loan-- usually to protect the lender's interest.
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profitability index (PI)
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The present value of an investment's future cash flows divided by its initial cost. Also-- benefit-cost ratio
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pro forma financial statements
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Financial statements projecting future years' operations.
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primary market
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The market in which new securities are originally sold to investors.
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preferred stock
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Stock with dividend priority over common stock-- normally with a fixed dividend rate-- sometimes without voting rights.
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perpetuity
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An annuity in which the cash flows continue forever.
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payback period
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The amount of time required for an investment to generate cash flows sufficient to recover its initial cost.
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over-the-counter (OTC) market
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Securities market in which trading is almost exclusively done through dealers who buy and sell for their own inventories.
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order flow
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The flow of customer orders to buy and sell securities.
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opportunity cost
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The most valuable alternative that is given up if a particular investment is undertaken.
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note
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An unsecured debt-- usually with a maturity under 10 years.
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nominal rates
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Interest rates or rates of return that have not been adjusted for inflation.
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net present value profile
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A graphical representation of the relationship between an investment's NPVs and various discount rates.
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net present value (NPV)
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The difference between an investment's market value and its cost.
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mutually exclusive investment decisions
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A situation in which taking one investment prevents the taking of another.
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multiple rates of return
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The possibility that more than one discount rate will make the NPV of an investment zero.
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member
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The owner of a seat on the NYSE.
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maturity
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Specified date on which the principal amount of a bond is paid.
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liquidity premium
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The portion of a nominal interest rate or bond yield that represents compensation for lack of liquidity.
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internal rate of return (IRR)
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The discount rate that makes the NPV of an investment zero.
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interest rate risk premium
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The compensation investors demand for bearing interest rate risk.
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inside quotes
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Highest bid quotes and lowest ask quotes offered by dealers for a security.
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inflation premium
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The portion of a nominal interest rate that represents compensation for expected future inflation.
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indenture
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The written agreement between the corporation and the lender detailing the terms of the debt issue.
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incremental cash flows
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The difference between a firm's future cash flows with a project and those without the project.
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floor traders
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NYSE members who trade for their own accounts-- trying to anticipate temporary price fluctuations.
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floor brokers
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NYSE members who execute orders for commission brokers on a fee basis; sometimes called $2 brokers.
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Fisher effect
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The relationship between nominal returns-- real returns-- and inflation.
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face value
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The principal amount of a bond that is repaid at the end of the term. Also-- par value.
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erosion
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The cash flows of a new project that come at the expense of a firm's existing projects.
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equivalent annual cost (EAC)
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The present value of a project's costs calculated on an annual basis.
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electronic communications network (ECN)
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A Web site that allows investors to trade directly with each other.
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effective annual rate (EAR)
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The interest rate expressed as if it were compounded once per year.
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dividends
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Payments by a corporation to shareholders-- made in either cash or stock.
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dividend yield
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A stock's expected cash dividend divided by its current price.
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dividend growth model
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A model that determines the current price of a stock as its dividend next period divided by the discount rate less the dividend growth rate.
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discounted payback period
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The length of time required for an investment's discounted cash flows to equal its initial cost.
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discounted cash flow (DCF) valuation
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The process of valuing an investment by discounting its future cash flows.
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dirty price
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The price of a bond including accrued interest-- also known as the full or invoice price. This is the price the buyer actually pays.
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depreciation tax shield
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The tax saving that results from the depreciation deduction-- calculated as depreciation multiplied by the corporate tax rate.
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deferred call provision
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A call provision prohibiting the company from redeeming the bond prior to a certain date.
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default risk premium
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The portion of a nominal interest rate or bond yield that represents compensation for the possibility of default.
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debenture
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An unsecured debt-- usually with a maturity of 10 years or more.
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dealer
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An agent who buys and sells securities from inventory.
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current yield
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A bond's annual coupon divided by its price.
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cumulative voting
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A procedure in which a shareholder may cast all votes for one member of the board of directors.
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coupon
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The stated interest payment made on a bond.
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coupon rate
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The annual coupon divided by the face value of a bond.
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consol
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A type of perpetuity.
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common stock
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Equity without priority for dividends or in bankruptcy.
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commission brokers
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NYSE members who execute customer orders to buy and sell stock transmitted to the exchange floor.
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clean price
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The price of a bond net of accrued interest; this is the price that is typically quoted.
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capital gains yield
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The dividend growth rate-- or the rate at which the value of an investment grows.
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call provision
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An agreement giving the corporation the option to repurchase the bond at a specified price prior to maturity.
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call protected bond
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A bond that-- during a certain period-- cannot be redeemed by the issuer.
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call premium
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The amount by which the call price exceeds the par value of the bond.
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broker
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An agent who arranges security transactions among investors.
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bid-ask spread
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The difference between the bid price and the asked price.
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bid price
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The price a dealer is willing to pay for a security.
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bearer form
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The form of bond issue in which the bond is issued without record of the owner's name; payment is made to whoever holds the bond.
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average accounting return (AAR)
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An investment's average net income divided by its average book value.
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asked price
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The price a dealer is willing to take for a security.
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annuity
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A level stream of cash flows for a fixed period of time.
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annuity due
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An annuity for which the cash flows occur at the beginning of the period.
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annual percentage rate (APR)
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The interest rate charged per period multiplied by the number of periods per year.
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accelerated cost recovery system (ACRS)
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A depreciation method under U.S. tax law allowing for the accelerated write-off of property under various classifications.
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