bond terminologies

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100% Equities Strategy An investment strategy for an individual portfolio or pooled funds vehicle such as a mutual fund. Only equity securities are considered for investment, whether they be listed stocks, over-the-counter stocks, or private equity shares. A mutual fund... 100% Mortgage A mortgage loan in which the borrower receives a loan amount equivalent to the total value of the property to be purchased. In this situation, the borrower does not need to make a down payment to secure the loan. 10-Year Treasury Note A debt obligation issued by the U.S. Treasury that has a term of more than one year, but not more than 10 years. 25% Rule 1. The idea that a local government's long-term debt should not exceed 25% of its annual budget. Any debt beyond this threshold is considered excessive and a potential risk, since the municipality may have trouble paying the cost of debt.2. A... 30-Year Treasury A U.S. Treasury debt obligation that has a maturity of 30 years. The 30-year Treasury used to be the bellwether U.S. bond but now most consider the 10-year Treasury to be the benchmark. 90/10 Strategy An investing strategy that involves deploying 90% of one's investment capital in interest-bearing instruments that have a lower degree of risk, and the balance 10% in high-risk investments. This is a relatively conservative investment strategy that...

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A.M. Best One of the established ratings agencies recognized by the SEC. A.M. Best has traditionally focused exclusively on providing a letter rating for insurance carriers. It has recently branched out into rating financial securities such as bonds. The... AA+/Aa1 The highest rating that some ratings agencies assign to a security or insurance carrier. This rating signifies that there is little to no risk of default and is often assigned to securities that have AMBAC or another type of insurance backing.... AAA The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has an exceptional degree of creditworthiness and can easily meet its financial commitments. Ratings agencies such as Standard &... Above Par A term used to describe the price of a security when it is trading above its face value. A security usually trades at above par when its income distributions are higher than those of other instruments currently available in the market.If an investor... Absolute Priority A rule that stipulates the order of payment - creditors before shareholders - in the event of liquidation. The absolute priority rule is used in bankruptcies to decide what portion of payment will be received by which participants. Debts to... Acceleration Covenant A clause included in certain debt securities and swap agreements stating that the immediate collection of payment and termination of contract will take place should any number of clauses being violated by the borrower including default or a... Accidental High Yielder A stock that carries an abnormally high dividend yield for the specific firm. An accidental high yielder

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is a stock of a company that was not intended to pay an excessive dividend yield;. however, the dividend yield rose when the price of the stock... Accordion Feature A type of option that a company can buy that gives it the right to increase its line of credit or similar type of liability with a lender. Companies typically purchase an accordion feature in anticipation of the need for more working capital for... Accreted Value The value, at any given time, of a multi-year instrument that accrues interest but does not pay that interest until maturity. The most well-known applications include zero-coupon bonds or cumulative preferred stock. Accretion 1. Asset growth through addition or expansion. 2. In reference to discount bonds, it describes the accumulation of value until maturity. Accretion of Discount The increase in the value of a discounted instrument as time passes and it approaches maturity. The value of the instrument will accrete (grow) at the interest rate implied by the discounted issuance price, the value at maturity and the term to... Accretive The process of accretion, which is the growth or increase by gradual addition, in finance and general nomenclature. An acquisition is considered accretive if it adds to earnings per share. Accrual Bond A bond that does not pay periodic interest payments. Instead, interest is added to the principal balance of the bond and is either paid at maturity or, at some point, the bond begins to pay both principal and interest based on the accrued principal... Accrual Rate The rate of interest that is added to the principal of a financial instrument between cash payments of that interest. For example, a six-month bond with interest payable semiannually will accrue daily interest during the six-month term until it is... Accrued Interest 1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, but not yet paid or received. Accrued interest occurs as a result of the difference in timing of cash flows and the... Accrued Interest Adjustment The extra amount of interest that is paid to the owner of a convertible bond or other fixed income security. The amount paid is equal to the balance of interest that has accrued since the last payment date of the bond.At the time, the investor... Accrued Market Discount The gain in the value of a discount bond expected from holding it for any duration until its maturity. Accumulation Bond A bond issued at an original issue discount (OID). This means that the interest accumulates but is not paid until maturity; there are no semi-annual coupon payments as with most bonds. These bonds are also referred to as "accrual bonds." ... Act Of God Bond A bond issued by an insurance company, linking principal and interest to a company's losses due to natural disasters. Act of God bonds are issued by insurers to protect against unforeseen events. Active Bond Crowd The name given to members of the NYSE and their specific bond trading departments that are acknowledged as frequent traders in active bonds. Active Return The percentage gain or loss of an investment relative to the investment's benchmark. An active

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return is the difference between the benchmark and the actual return. It can be positive or negative and is typically used to assess performance. ... Active Tranche A tranche of a collateralized mortgage obligation (CMO) that is currently receiving principal payments that are passed through to its investors. While interest is paid on all tranches of a CMO when it is first issued, principal payments on each... Adaptive Expectations Hypothesis A hypothesis stating that individuals make investment decisions based on the direction of recent historical data, such as past inflation rates, and adjust the data (based on their expectations) to predict future rates. Add-On Certificate of Deposit A certificate of deposit that allows the bearer to deposit additional funds, after the initial purchase date, that will bear the same rate of interest. Adjustment Bond Issued by a corporation during a restructuring phase, an adjustment bond is given to the bondholders of an outstanding bond issue prior to the restructuring. The debt obligation is consolidated and transferred from the outstanding bond issue to the... Advance Refunding 1. A bond issuance used to pay off another outstanding bond. The new bond will often be issued at a lower rate than the older outstanding bond. 2. A bond issuance in which new bonds are sold at a lower rate than outstanding ones. The proceeds are... After-Acquired Clause A provision included in legal contracts ensuring that subsequent acquisitions of assets will be included in the debtor's liability to the lender. After-Tax Basis The basis for weighing the performance of two investments against each other after taxes have been factored into the equation. After-Tax Return The return on an investment including all income received and capital gains, calculated by taking expected or paid income taxes into account. Generally reserved for returns on positions that have been closed out or sold, after-tax returns are also... Agency Bond A bond issued by a government agency. These bonds are not fully guaranteed in the same way as U.S. Treasury and municipal bonds. Agency Cost Of Debt A problem arising from the conflict of interested created by the separation of management from ownership (the stockholders) in a publicly owned company. Corporate governance mechanisms, such as boards of directors and the issuance of debt, are used... Agency Debentures Debt issued by a federal agency or a government-sponsored enterprise (GSE) for financing purposes. These types of debentures are not backed by collateral, but by the integrity and credit worthiness of the issuer. Officially, agency debentures issued... Agency Security Low-risk debt obligations that are issued by U.S. government-sponsored entities (GSEs) and other federally related bodies. Agency securities are issued by GSEs, including the Federal National Mortgage Association (FNMA), Federal Home Loan Bank and... Agio A description of the bond premium when the bond market value is greater than the par value. In international markets, agio can also sometimes refer to the fee paid for undertaking a transaction. Because these bonds are often traded on international...

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