Finance Exam 1

Front 1

accrued interest

Back 1

a. interest that has accumulated btw the most recent payment and sale of a bond or another fixed income security. The buyer pays the seller bond price plus accrued interest

Front 2

agency securities

Back 2

securities issued by government sponsored corps. such as Federal Home Loan. They are exempt from the SEC registration requirements.

Front 3

ask price

Back 3

the price which an investor initiating a security purchase will pay a dealer

Front 4

asset backed securities

Back 4

a product of the asset securitiztion process whereby specific assets

Front 5

Ballon Payment bond

Back 5

a bond with terminal payment at maturity which is substaintially larger than any intermediate payments ex: coupon bond with constant semi annual interest payments and payments at maturity

Front 6

bankers acceptance

Back 6

a vehicle that faciltates short term loans particularly between importers and investors...banks accept the responsibility if repaying the loan, thereby sheilding the investor of default risk

Front 7

basis points

Back 7

smallest measure used in quoting yeilds on bonds and notes. one basis pt is .01% of yield

Front 8

bid price

Back 8

the price at which the investor initiating a security sale ill receive from a dealer

Front 9

bid -ask spread

Back 9

the difference btw the price a security could be purchased for and the price that a security could sold for...bid will always be lower than the ask because dealer has to make money...the higher the volume of trading, the smaller the spread

Front 10

bond

Back 10

any interest bearing or discounted government or corporate security that obligates the issuer to pay the bondholder a specified sum of money, usually at specific intervals, and to repay the principal amount of the loan

Front 11

bowie bonds

Back 11

bonds secured by future royalties of entertainers. the artist gets money upfront, free of income tax...the bonds must be repaid over 10 to 20 years at about an 8% interest rate

Front 12

brady bonds

Back 12

named after former US secretary of treasury...they have resulted from the exchange of commercial bank loans to developing nations (sometimes defaulted) into new bonds. The goal of the exchange is to reduce and restructure the debt of countries that have reformed their economic policies to the point where they can achieve economic growth and make timely payments on their debt obligations..these bonds are very safe

Front 13

callable bonds

Back 13

a bond that can be repurchased at the call price from the bondholder by the issuer, there may be a no call period, there may be a call premium, a callable bond will have a larger coupon...if interest rates go down a company might want to buy it back

Front 14

certificate of deposit

Back 14

(CD)- debt instrument issued by a bank that usually pays interest. Institutional CD's are issued in demonintions of $100,000 or more and individual CD's are as low as $100.

Front 15

Close-End fund

Back 15

a mutual fund with a LIMITED number of shares outstanding...you cannot join and buy new shares. The number of shares are fixed and tou must find a seller (like a stock) <NAV= net asset value>

Front 16

Collateralized mortgage obligations (CMO's)

Back 16

a generic term for security backed by real estate mortgages...think about picture and mortgage crisis.

Front 17

commerical paper

Back 17

a short term unsecured promissory note issued by a finance company or a relatively large industrial firm. maturities usually ranging from 30 to 270 days. The large denomination of money usually keep individual investor out of the market

Front 18

convertible bond

Back 18

a bond that can be converted into a set number of some other security, usually common stock, at the option of the bond holder. There may be a no convert period, and a convertible bond will have a smaller coupon than other bonds

Front 19

death puts

Back 19

a corporate bond that gives you a little reward for dying. Your estate has the right to put the bond back to the issuer and collect par value. Depending on how much you paid for the death put and how interest rates have changed your estate could make a nice profit

Front 20

debenture

Back 20

a general debt obligation backed only by the integrity of the borrower and documented by an agreement called an indenture (an unsecured bond)

Front 21

duration

Back 21

weighted average of the times from today until a security promised cash payments would occur. The significance of a duration concept is that the change in a bond's price due to change in interest rates is negatively porportional to the bond's duration. If interest rates decrease, the price of a longer duration bond will increase more than the price of the shorter bond.

Front 22

equal - payment bond

Back 22

regular cash payments to the holder are equal in magnitude

Front 23

eurobond

Back 23

bond denominated in US dollars or other currencies and sold to other investors outside the country whose currency is used. The bonds are usually issued by large underwriting groups composed of banks from many different companies. (look in packet for example)

Front 24

eurodollar

Back 24

US currency held in banks outside the United States, and mainly used to settle international transactions. Some securities can be issued in eurodollars.

Front 25

flower bond

Back 25

US government bond that regardless of its price is acceptable at par value in payment of estate taxes if the descendent was the legal holder at the time of death, also called estate tax anticipation bond. issued in 1971 (if tou die your estate will be able to get them)

Front 26

hedge fund

Back 26

private and largely unregulated investment pools for the rich. They dont need to register with the SEC but sometimes need to make other filings with washington agencies. Unlike mutual funds they can concentrate their portfolios with no thought of diversification. They must limit ther access to few investors. The manager has a fixed fee and gets a percentage. Donalh Fehrs (Cornell CFO) says he has incentive to meet goals but with a great deal of discretion)

Front 27

load fund

Back 27

a mutual fund that is sold for a sales charge by a brokerage firm. Such funds may be a stock, bond, or commodity fund with conservative or aggressive objectives. There are front end and or back end charges.

Front 28

money market fund

Back 28

an open ended mutual fund that invests in commercial paper, bankers acceptances, repurchase agreements, government securities, CD's, and other highly liquid and safe securities, and pays money market interest rates