A301 P5 Flashcards
Coupon
The interest payments on a bond.
Covenant
An agreement that is legal and binding on the parties involved.
The expression is often used in association with corporate debt, because the borrower is bound to the terms of the agreement.
The expression is also used in property investment because the tenant or lessee is bound to the terms of the lease agreement.
In fact the meaning of covenant has been extended in the context of property investment so that it usually refers to the quality of the tenant.
Credibility
A measure of the weight to be given to a statistic.
Often refers to the experience for a particular risk compared to that derived from the overall experience of a corresponding parent or larger population.
The measure is used to determine a premium when using experience rating.
Credit rating
A rating given to a company’s debt by a credit-rating company as an indication of the likelihood of default.
Top rating is usually AAA. Credit ratings are much used.
Credit risk
The risk that the counterparty to an agreement will be UNABLE OR UNWILLING TO MAKE PAYMENTS required under the agreement.
Custodian
The keeper of security certificates and other assets on behalf of investors.
Debenture
A loan made to a company which is SECURED AGAINST THE ASSETS of the company so that the debenture holders rank above other creditors should the company be wound up.
Debentures with fixed charges are called mortgage debentures.
Deferred member
A member of a benefits scheme who is no longer accruing benefits
but
who has accrued benefits that will be payable at a future date.
Deficit
Where a benefits scheme or financial product provider has LESS ASSETS THAN REQUIRED by the funding plan to meet the liabilities.
Defined ambition scheme
A scheme where RISKS ARE SHARED between the different parties involved, for example - scheme members, - employers, - insurers and - investment businesses.
Defined benefit scheme
The benefits scheme where the scheme rules define the benefits INDEPENDENTLY of the contributions payable,
and benefits are not directly related to the investments of the scheme.
The scheme may be funded or unfunded.
Defined contribution scheme
A scheme providing benefits where the amount of an individual member’s benefits depends on
- the CONTRIBUTIONS paid into the scheme in respect of that member
- increased by the INVESTMENT RETURN earned on those contributions.
Depreciation
An accounting convention whereby firms write down the value of their assets over time.
Derivative instrument
A financial instrument with a value dependent on the value of some other, underlying asset.
Discounted income model
A model for valuing investment which determines a present value for the investments by discounting the expected future income from the assets.
Dividend yield
The running yield on an equity.
dividends divided by share price
Duration
The duration of a conventional bond is the
MEAN TERM OF THE PAYMENTS from the stock,
where each term is weighted by the present value of that payment.
Early leaver
A person who ceases to be an active member of a benefit scheme, other than on death, without being granted an immediate retirement benefit.
Economic value added
The percentage difference between
- the annual return on capital and
- the weighted average cost of capital.
Efficient frontier
an efficient portfolio is one for which it is not possible to increase the expected return without accepting more risk and not possible to reduce the risk without accepting a lower return.
The efficient frontier is the line joining all efficient portfolios in risk-return space.
In portfolio theory, risk is defined as variance or standard deviation of return.
Efficient market hypothesis
A hypothesis that asset prices reflect all relevant information.
Embedded value
It represents the value to shareholders of the FUTURE PROFIT STREAM from a company’s existing business
together with the value of any net assets separately attributable to shareholders
Emerging Market
Stock markets in developing countries such as China, Mexico, Singapore etc.
They offer high expected returns due to rapid industrialisation.
They are also very risky markets.
Equity in investment
Ordinary shares issued by a company as a share in the equity capital of a company.
In effect, the equity holders are the owners of the company.
Ordinary shareholders have the right to receive all distributable profits of the company after debtholders and preference shareholders have been paid.
They also have the right to attend and vote at general meetings of the company.