Test 1 Cfa Glossary B

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Back simulation

Back 1

another term for the historical method of estimating VAR. The method involveds not a simulation of the past but rather what actually happened in the past sometimes adjusted to reflect the fact that a different portfolio may have existed in the past than is planned fo the future

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back-testing

Back 2

with reference to portfolios strategies, the application of a strategy's portfolio selection rules to historical data to assess what would have been the strategy's historical performance

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backup lines of credit

Back 3

a type of credit enhancement provided by a bank to an issuer of commercial paper to ensure that the issuer will have access to sufficient liquidity to repay maturing commercial paper if issuing new paper is not a viable option

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balance of payments

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a double-entry bookkeeping system that summarizes a country's economic transactions with the rest of the world for a particular period of time, typically a calendar quarter or year

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balance of trade deficit

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when the domestic economy is spending more on foreign goods and servicies than foreign economies are spending on domestic goods and services

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balance sheet

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the financial statement that presents an entity's current financial position by disclosing resources the entity controls (its assets) and the claims on those resources (its liabilities and equity claims), as of a particular point in time

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what are the two synonyms for balance sheet

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- statement of financial position
- statement of financial condition

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balance sheet ratios

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financial ratios involving balance sheet items only

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balanced

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with respect to government budget, one in which spending revenues (taxes) equal

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balloon payment

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large payment required at maturity to retire a bond's outstanding principal amount

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bank discount basis

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a quoting convention that annualizes, on a 360-day year, the discount as a percentage of face value

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bar chart

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a price chart with four bits of data for each time interval- the high, low, opening, and closing prices. A vertical line connects the high and low.

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A cross-hatch left indicates on a bar chart

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opening price

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A cross-hatch right indicates on a bar chart

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closing price

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barter economy

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an economy where economic agents as house-holds, corporations, and governments "pay" for goods and services with another good or service.

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base rate

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the reference rate on which a bank bases lending rates to all other customers

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basic EPS

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net earnings available to common shareholders (i.e. net income minus preferred dividends) dividing by the weighted average number of common shares outstanding

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basis point

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used in stating yield spreads, one basis point equals one-hundredth of a percentage point or 0.01%

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basket of listed depository reciepts

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an exchange traded fund that represents a portfolio of depository receipts

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bearer bonds

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bonds for which ownership is not recorded only the clearning system knows who the bond owner is

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behavioral equations

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with respect to demand and supply, equations that model the behavior of buyers and sellers

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behavioral finance

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a field of finance that examines the psychological variables that affect and often distort the investment decision making of investors, analysts and portfolio managers

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behind the market

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said of prices specified in orders that are worse than the best current price; e.g. for a limit buy order, a limit price below the best bid

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benchmark

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a comparison portfolio; a point of reference or compariosn

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benchmark issue

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the latest soverign bond issue for a given maturity. It serves as a benchmark against which to compare bonds that have the same features but that are issued by another type of issuer.

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benchmark rate

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typically the yield to maturity on a government bond having the same or close to the same time-to-maturity

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benchmark spread

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the yield spread over a speicifc benchmark usually measured in basis points

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bermuda-style

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said of an option contract that can be exercised on specified dates up to the options expiration date.

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bernoulli random variable

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a random variable having outcomes of 0 and 1

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bernoulli trial

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an experiment that can produce one of two outcomes

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best bid

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the highest bid in the market

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best effort offering

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an offering of a security using an investment bank in which the investment bank, as agent for the issuer, promises to use its best efforts to sell the offering but does not guarantee that a specific amount will be sold.

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beta

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a measure of systematic risk that is based on the covariance of an asset's or portfolio's return with the return of the overal market

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bid

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the price at which a dealer or trader is willing to buy an asset, typically qualified by a maximum quantity

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bid size

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the maximum quantity of an asset that pertains to a specific bid price from a trader

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bid-ask spread

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the difference between the prices at which dealers will buy from a customer (bid) and sell to a customer (offer to ask). It is often used as an indicator of liquidity

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bid-offer spread

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the difference between the prices at which dealers will buy from a customer (bid) and sell to a customer ( offer or ask) it is often used as an indicator of liquidity

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bilateral loan

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a loan from a single lender to a single borrower

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binomial model

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a model for pricing options in which the underlying price can move to only one of two possible new prices

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binomial random variable

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the number of successes in n bernoulli trials for which the probability of success is constant for all trials and the trials are independent

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binomial tree

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the graphical representation of a model of asset price dynamics in which, at each period, the asset moves up with probability p or down with probability (1-P)

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block brokers

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a broker (agent) that provides brokerage services for large-size trades

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blue chip

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widely held large market capitalization companies that are considered financially sound are leaders in their respective industries or local stock market

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bollinger bands

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a price based technical analysis indicator consisting of a moving average plus a higher line representing the moving average plus a set number of standard deviations from average price (for the same number of periods as used to calculate the moving average) and a lower line that is a moving average minus the same number of standard deviations

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bond

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contractual agreement between the issuer and the bondholders

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bond equivalent yield

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a calculations of yield that is annualized using the ratio of 365 to the number of days to maturity. Allows for the restatement and comparison of securities with different compounding periods

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bond indenture

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the governing legal credit agreement, typically incorporated by reference in the prospectus

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bond market vigilantes

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bond market participants who might reduce their demand for long term bonds, thus pushing up their yields

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bond option

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an option in which the underlying is a bond, primarily traded in the over-the counter market

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bond yield plus risk premium approach

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an estimate of the cost of common equity that is produced by summing the before tax cost of debt and a risk premium that captures the additional yield on a company's stock relative to its bonds. The additional yield is often estimated using historical spreads between bond yield and stock yields

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bonus issue of shares

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a type of dividend in which a company distributes additional shares of its common stock to shareholders instead of cash

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book building

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investment bankers' process of compiling a book or list of indications of interest to buy parts of an offering.

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book value

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the net amount shown for an asset or liability on the balance sheet; book value may also refer to the company's excess of total assets over total liabilities

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what is another word for book value

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carrying value

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boom

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an expansionary phase characterized by economic growth "testing the limits" of the economy

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bottom up analysis

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- with reference to investment selection processes, an approach that involves selection from all securities within a specified investment universe, i.e without prior narrowing of the universe on the basis of macroeconomic or overal market considerations

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break point

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in the context of weighted average cost capital (WACC), a break point is the amount of capital at which the cost of one or more of the sources of capital charges, leading to change in the WACC.

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breakeven point

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the number of units produced and sold at which the company's net income is zero (revenues = total costs)); in the case of perfect competition, teh quantity where price, average revenues and marginal revue equal average total cost.

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bridge financing

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interim financing that provides funds until permanent financing can be arraged.

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broad money

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encompasses narrow money plus the entire range of liquid assets that can be used to make purchases

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broker

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- an agent who executes orderst to buy or sell securities on behalf of a client in exchange for a commision

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brokered market

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a market in which brokers arrange trades among clients

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broker-dealer

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a financial intermediary (often a company) that may function as a principal (dealer) or as an agent (broker) depending on the type of trade

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budget constraint

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a constraint on spending or investment imposed by wealth or income

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budget surplus/deficit

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the differance between government revenue and expenditure for a stated fixed period of time

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business risk

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the risk associated with operating earnings. Operating earnings are uncertain because total revenues and many of the expenditures contributed to produce those revenues are uncertain

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buy-side firm

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an investment management company or other investors that uses the services of broker or dealers.

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buyback

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a transaction in which a company buys back its own shares. Unlike stock dividends and stock splits, share repurchases use corporate cash

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buyout fund

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a fund that buys all the shares of a public company so that, in effect, the company become private.