Chapter 2 Terms

Question 1

Negotiable CDs

Answer 1

CDs that can be sold to someone else in a secondary market. Also known as jumbo CDs because they come in denominations of at least $100,000.

Question 2

settlement date

Answer 2

The date that buyers are expected to pay for the securities they purchased and sellers are expected to deliver the securities they sold.

Question 3

“and interest”

Answer 3

A descriptor used to indicate that a bond’s purchase price will include its quoted (clean) price plus any accrued interest since the last payment date.

Question 4

Street name registration

Answer 4

Registration in which a security is recorded in the issuer’s books in the name of the owner’s brokerage firm, which holds the security in book-entry form.

Question 5

Global Depository Shares GDSs

Answer 5

Depository receipts of foreign companies that are not issued in the United States. GDRs represent ownership in a foreign company and are marketed outside of both the company’s home country and the United States.

Question 6

Ex-date

Answer 6

The date at which a stock begins to trade without the new owner receiving the dividend.

Question 7

beneficial owner

Answer 7

Beneficial owner
Company Logo
One who has the benefits of owning a stock but whose title is held for reasons of safety or convenience “in street name” by that person’s broker.

Question 8

Street name

Answer 8

Registration in which a security is recorded in the issuer’s books in the name of the owner’s brokerage firm, which holds the security in book-entry form.

Question 9

Anticipation Notes

Answer 9

Municipal notes that are issued in advance of, or in anticipation of, an expected source of income

Question 10

Declaration Date

Answer 10

The date that a company’s board of directors declares a dividend.

Question 11

Advanced refunding

Answer 11

refunding bond in which the old issue remains outstanding for a period longer than 90 days after the refunding bond has been issued

Question 12

registrar

Answer 12

An entity, such as a bank, that monitors and audits the activities of a company’s transfer agent.

Question 13

pre-refunding

Answer 13

A type of advance refunding in which a new bond issue is held in escrow until the old bonds can be redeemed at their earliest possible call date.

Question 14

treasury receipts

Answer 14

A zero coupon bond issued by a private issuer, such as a brokerage firm, and secured by a stripped Treasury security. Also called STRIPS.

Question 15

record date

Answer 15

The date by which a purchaser must be the owner of record in order to be eligible to receive a dividend or other distribution, fixed by the company on the day that dividends are declared.

Question 16

subscription price

Answer 16

The price, usually below the market price, at which shareholders holding rights certificates may purchase shares in a rights offering.

Question 17

payment date

Answer 17

date that the board of directors sets to pay the dividend; also called the payable date

Question 18

DCF analysis

Answer 18

A valuation method based on the notion that the value of a company can be calculated from its projected free cash flow. In a DCF, future cash flows are estimated and discounted to their respective present values. They are then added to the discounted terminal value to reach an estimated company value.

Question 19

defease

Answer 19

to remove a loan or bond as a liability on a BS when the borrower has set aside sufficient funds to service the debt

Question 20

direct registration

Answer 20

registration of a security on an issuer’s books in the owner’s name, where either the issuer or its transfer agent holds the security in book-entry form on the owner’s behalf

Question 21

series EE bonds

Answer 21

type of US savings bond that earns a fixed ROR. Interest payments are accrued over the life of the bond and paid out with the principal at maturity

Question 22

Warrant

Answer 22

financial instrument that gives holder the right to purchase securities from issuing company @ a specific price within a specified time frame

Question 23

I bonds

Answer 23

US savings bonds that pay a guaranteed interest rate that may be adjusted upward when inflation rises

Question 24

Yankee bonds

Answer 24

US dollar denom’d bonds issued in the US by foreign issuer. May be issued by foreign governements, but more often by corporations and other private entities

Question 25

bank discount basis

Answer 25

quote from T bills that use the bank discount yield, which is the annualized ratio of the bill’s discount to its face value

Question 26

balloon maturity

Answer 26

serial bond in which one maturity, usually the last one, contains a disproportionately large amount of the principal

Question 27

Eurobond

Answer 27

type of international bond that is denominated in a currency other than that of the country where it is issued or where the issuing company has its HQ

Question 28

Eurodollar bonds

Answer 28

eurobonds denom’d in US dollars meaning that interest and principal will be paid in the US dollars, but bonds will be sold out the US

Question 29

DDM

Answer 29

A model for determining whether a stock is over- or undervalued. According to the DDM, when dividends are assumed to grow at a constant rate, the price of a stock can be estimated by dividing the annual dividend by the value of the required rate of return less the growth rate.

Question 30

depository bank

Answer 30

a US bank that buys shares of scts from an issuing company in another country so it can issue ADRs to sell in US markets

Question 31

book entry bonds

Answer 31

a bond whose ownerhsip is recorded by computer at a central depository but for which no certificate is issued

Question 32

zero coupon bond

Answer 32

discount bond that makes no interest payment

Question 33

transfer agent

Answer 33

a bank or trust company hired to keep ownership records of an issuer’s securities and in what form the stock/bonds are held

Question 34

STRIPS

Answer 34

interest-only or principal-only components of T-notes and bonds that act as 0 coupon securities

Question 35

bank discount yield

Answer 35

the annual yield on a security sold at a discount such as a T bill or commercial paper

Question 36

Global Depository Receipts

Answer 36

depository receipts of foreign companies that aren’t issued in the US. GDRs represent ownership in a foreign comp and are marketed outside of both the comp’s home country and the US

Question 37

current yield

Answer 37

the coupon rate of a bond divided by its market price

Question 38

Spread**

Answer 38

1. the difference between two prices, such as the bid and ask of a listed security, the futures prices from two delivery months of the same commodity or two maturity dates of the same bond, or the price paid to an issuer of securities and the price paid by the public. 2. with regard to options, a position consisting of two or more options of the same type (calls or puts). Compare with combination.

Question 39

Brady bond

Answer 39

a soverign debt security issued in US dollars by Latin American and other developing countries

Question 40

duration

Answer 40

a measure of a bond’s price sensitivity to small changes in interest rates

Question 41

Exchange rate risk

Answer 41

risk that has to do with the possibility that an investment amde in another country’s currency will experience a substantial loss due to a flux in that currency’s value prior to conversion back to US dollars. also called currency risk, exchange risk or foreign exchange risk

Question 42

Trust indenture

Answer 42

an agreement in a bond contract that spells out the covenants (commitments) to be honored by the issuer and allows a trustee to take action on behalf of the bondholders in the event of a default

Question 43

Ex- dividend date

Answer 43

date at which a stock begins to trade without the new owner receiving the dividend

Question 44

Collateralized mortgage obligation

Answer 44

debt instrument backed by a pool of mortgage backed securities or mortgage loans that is structured into several classes of bondholder, eachi with its own interest rate and term