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Fin Man 7-9
Terms in this set (49)
A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. Duration is expressed as a number of years
- way to invest
- settles at end of day
- individuals pool money together
- can be broad or very specific
Exchange Traded Fund (ETF)
- trades throughout day
- similar to mutual fund; pooling of money
A non-bank person or organization that trades securities in large enough share quantities or dollar amounts that they qualify for preferential treatment and lower commissions.
Individual investors who buy and sell securities for their personal account, and not for another company or organization.
Securities & Exchange Commission (SEC)
The federal agency responsible for regulating securities dealings
- A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc.
- stocks that trade via a dealer network as opposed to on a centralized exchange.
- ex.) debt securities
the interest rate paid by a bond on its face value. The dollar amount of the interest payment, which is usually made semiannually.
The stated or face value of certain securities, generally bonds and preferred stocks. A bond pays interest on its par value, which is usually $1,000
1. The amount borrowed or the amount still owed on a loan, separate from interest.
2. The original amount invested, separate from earnings.
3. The face value of a bond.
Amount of time between a bond's issue date and it's maturity date
tells how long the bond has left until it matures
Yield to maturity (YTM)
The rate of return anticipated on a bond if held until the end of its lifetime.
Yield to Call (YTC)
The yield of a bond or note if you were to buy and hold the security until the call date. This yield is valid only if the security is called prior to maturity.
allows the original issuer to repurchase and retire the bonds
it will typically come with a time window under which the bond can be called, and a specific price to be paid to bondholders and any accrued interest are defined
somewhat of a penalty paid by the issuer to the bondholders for the early redemption.
A bond that is issued for less than its par (or face) value, or a bond currently trading for less than its par value in the secondary market
A bond that is issued for more than its par (or face) value, or a bond currently trading for more than its par value in the secondary market
A bond that is issued for its par (or face) value, or a bond currently trading for its par value in the secondary market
interest rate risk
The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between two rates, in the shape of the yield curve or in any other interest rate relationship. Such changes usually affect securities inversely and can be reduced by diversifying (investing in fixed-income securities with different durations) or hedging (e.g. through an interest rate swap).
a document disclosing the details of a security and the underlying business to prospective investors
contractual agreements associated with loans that limit the activities of borrowing companies. The limitations are designed to reduce the risk that the firm won't be able to pay the loan's interest and principal
a prospectus for the sale of a security not yet approved by the SEC. Stamped with the words preliminary in red letters
contractual agreements associated with bonds that limit the activities of issuing companies. The limitations are designed to reduce the risk that the firm won't be able to pay the bond's interest and principal
Bonds with which the issuer or a transfer agent keeps a list of the names of owners. Interest payments are made to owners of record as of specified date.
an unregistered bond, owned by the "bearer", the person in possession
an unsecured bond, i.e., a bond that is not collateralized by any specific assets but depends only on the general creditworthiness of the borrowing company
Borrowed money that a company must repay first if it goes out of business.
In the case of default, creditors with subordinated debt wouldn't get paid out until after the senior debtholders were paid in full.
- way for company to reduce the risk of a repayment
- lower interest rate because less risky
A provision allowing a bond issuer the opportunity to buy outstanding bonds from bondholders for a set rate, using money (a sinking fund) from the issuer's earnings saved specifically for security buybacks. Because it adds doubt for investors over whether the bond will continue to pay until its maturity date, a sinking fund call is seen as an additional risk for investors.
A rating that indicates that a municipal or corporate bond has a relatively low risk of default.
High yield bonds (junk bonds)
A high paying bond with a lower credit rating than investment-grade corporate bonds, Treasury bonds and municipal bonds. Because of the higher risk of default, these bonds pay a higher yield than investment grade bonds.
- like refinancing, however call a bond to do this
The process of retiring or redeeming an outstanding bond issue at maturity by using the proceeds from a new debt issue. The new issue is almost always issued at a lower rate of interest than the refunded issue, ensuring significant reduction in interest expense for the issuer.
paying off a loan with the proceeds of a new loan generally made at a lower interest rate than the loan being paid off. Homeowners commonly refinance mortgages when interest rates fall.
all the fees associated with issuing a security
- the administrative cost of issuing new securities. consists largely of commissions and marketing fees, but printing and engraving coast can also be significant.
A reference to a security that has been registered, issued and is being sold on a market to the public for the first time. New issues are sometimes referred to as primary shares or new offerings.
An issue of additional securities from an established company whose securities already trade in the secondary market. A seasoned issue is also known as a "seasoned equity offering" or "follow-on offering."
A debt security that doesn't pay interest (a coupon) but is traded at a deep discount, rendering profit at maturity when the bond is redeemed for its full face value.
A bond or other type of debt whose coupon rate changes with market conditions (short-term interest rates).
change in security is specifically linked to the change in inflation. Protection against inflation.
A bond that can be converted into a predetermined amount of the company's equity at certain times during its life, usually at the discretion of the bondholder.
A debt security issued by a government to support government spending, most often issued in the country's domestic currency. Government debt is money owed by any level of government and is backed by the full faith of the government.
A debt security issued by a national government within a given country and denominated in a foreign currency
a bond issued by a government unit below the federal level. the interest is exempt from federal income tax
mortgage-backed bond (MBS)
a bond secured by real estate
asset-backed bond (ABS)
a bond secured by assets
- a bond issued by a government agency
- not fully guaranteed like government bonds
- They include such agencies as Fannie Mae (FNMA/"Fannie"), Freddie Mac (FHLMC/"Freddie"), Sallie Mae (SLMA/"Sallie") and the Federal Home Loan Banks.
A debt security issued by a corporation and sold to investors. The backing for the bond is usually the payment ability of the company, which is typically money to be earned from future operations. In some cases, the company's physical assets may be used as collateral for bonds.
- risker than government bonds thus higher interest rates, usually
a bond denominated in the currency of the country in which it is sold, but is issued by a foreign borrower