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Glossary
A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z
A
Accrued interest. Interest deemed to be earned on a security but not yet paid to the investor.
Ask price. Price being sought for the security by the seller.
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B
Basis point. One one-hundredth of 1 percent. Yield differences among fixed-income securities are stated in basis points.
Bearer security. A security that has no identification as to owner. It is presumed to be owned by the person who holds it. Bearer securities are freely negotiable, since ownership can be quickly transferred from seller to buyer by delivery of the instrument. However, note that in the United States it has not been legal to issue bearer bonds in the municipal or corporate markets since 1982. As a result, bearer bonds available in the secondary market are long-dated maturities issued before this date and are becoming increasingly scarce. Among the disadvantages of bearer securities are that you must clip the coupons and present them to the trustee in order to receive your interest; and if the bonds are called, you will not automatically be alerted by the issuer or trustee.
Bid price. The price at which a buyer will purchase a security.
Bond insurers and reinsurers. A partial list of bond insurers includes American Municipal Bond Assurance Corp. (AMBAC), Financial Guaranty Insurance Co. (FGIC), Financial Security Assurance (FSA), and Municipal Bond Insurance Association (MBIA).
Book-entry. A method of recording and transferring ownership of securities electronically, eliminating the need for physical certificates.
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C
Callable bonds. Bonds which are redeemable by the issuer prior to the maturity date at a specified price at or above par.
Call premium. A dollar amount, usually stated as a percent of the principal amount called, paid by the issuer as a "penalty" for the exercise of a call provision.
Closed-end investment company (Exchange Traded Fund or ETF). An investment company created with a fixed number of shares which are then traded as listed securities on a stock exchange. After the initial offering, existing shares can only be bought from existing shareholders.
CMO (Collateralized Mortgage Obligation). A bond backed by a pool of mortgage pass-through securities or mortgage loans, which generally supports several classes of obligations. (See "REMIC.")
Coupon. This part of a bearer bond denotes the amount of interest due and on what date and where payment will be made. Bearer coupons are presented to the issuer's designated paying agent for collection. With registered bonds, physical coupons don't exist. (See "Registered bond.") The payment is mailed directly to the registered holder. Note that while bearer bonds are no longer issued in the United States and, hence, physical coupons are increasingly scarce, dealers and investors often still refer to the stated interest rate on a registered or book-entry bond as the "coupon."
Current yield. The ratio of interest to the actual market price of the bond, stated as a percentage. For example, a bond with a current market price of $1,000 that pays $80 per year in interest would have a current yield of 8%.
CUSIP. The Committee on Uniform Security Identification Procedures, established under the auspices of the American Bankers Association to develop a uniform method of identifying securities. CUSIP numbers are unique nine-digit numbers assigned to each series of securities.
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D
Dated date (or issue date). The date of a bond issue from which the first owner of a bond is entitled to receive interest.
Default. Failure to pay principal or interest when due. Defaults can also occur for failure to meet nonpayment obligations, such as reporting requirements, or when a material problem occurs for the issuer, such as a bankruptcy.
Debenture. Unsecured debt obligation issued against the general credit of a corporation, rather than against a specific asset.
Discount. The amount by which the purchase price of a security is less than the principal amount, or par value.
Discount note. Short-term obligations issued at discount from face value, with maturities ranging from overnight to 360 days. They have no periodic interest payments; the investor receives the note's face value at maturity.
Discount rate. The rate the Federal Reserve charges on loans to member banks.
Duration. The weighted maturity of a fixed-income investment's cash flows, used in the estimation of the price sensitivity of fixed-income securities for a given change in interest rates.
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E
Extension risk. The risk that rising interest rates will slow the anticipated rate at which mortgages or other loans in a pool will be repaid, causing investors to find their principal committed longer than expected. As a result, they may miss the opportunity to earn a higher rate of interest on their money.
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F
Face amount. Par value (principal or maturity value) of a security appearing on the face of the instrument.
Federal funds rate. The interest rate charged by banks on loans of their excess reserve funds to other banks. The Federal Reserve's ability to add or withdraw reserves from the banking system gives it close control over this rate. Changes in the federal funds rate are sometimes studied by economists and investors for clues to Federal Reserve intentions.
Floating-rate bond. A bond for which the interest rate is adjusted periodically according to a predetermined formula, usually linked to an index.
Floor. The lower limit for the interest rate on a floating-rate bond.
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G
General obligation bond (G.O.). A municipal bond secured by the pledge of the issuer's full faith, credit and taxing power.
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H
Hedge. An investment made with the intention of minimizing the impact of adverse movements in interest rates or securities prices.
High-yield bond. Bonds issued by lower-rated corporations, sovereign countries and other entities rated Ba or BB or below and offering a higher yield than more creditworthy securities, sometimes known as junk bonds.
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I
Investment-grade. Bonds considered suitable for preservation of invested capital by the rating agencies and rated Baa or BBB or above.
Issuer. An entity which issues and is obligated to pay principal and interest on securities.
Interest. Compensation paid or to be paid for the use of money. Interest is generally expressed as an annual percentage rate. Municipal bond interest is generally exempt from federal income tax and from state and local income tax within the state of issue.
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J
Junk bond. A debt obligation with a rating of Ba or BB or lower, generally paying interest above the return on more highly rated bonds, sometimes known as high-yield bonds.
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K
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L
Leverage. The use of borrowed money to increase investing power.
LIBOR (London Interbank Offered Rate). The rate banks charge each other for short-term Eurodollar loans. LIBOR is frequently used as the base for resetting rates on floating-rate securities.
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M
Marketability. A measure of the ease with which a security can be sold in the secondary market.
Maturity. The date when the principal amount of a security is payable.
Mortgage pass-through. A security representing a direct interest in a pool of mortgage loans. The pass-through issuer or servicer collects payments on the loans in the pool and "passes through" the principal and interest to the security holders on a pro rata basis.
Mutual fund. Also known as an open-end investment company, to differentiate it from a closed-end investment company. Mutual funds invest pooled cash of many investors to meet the fund's stated investment objective. Mutual funds stand ready to sell and redeem their shares at any time at the fund's current net asset value: total fund assets divided by shares outstanding.
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N
Non-callable bond. A bond that cannot be called for redemption by the issuer before its specified maturity date.
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O
Offer. The price at which a seller will sell a security.
Offering price. The price at which members of an underwriting syndicate for a new issue will offer securities to investors.
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P
Par value. The principal amount (face value) of a bond or note due at maturity.
Paying agent. Place where principal and interest are payable. Usually a designated bank or the office of the treasurer of the issuer.
Premium. The amount by which the price of a security exceeds its principal amount.
Prepayment. The unscheduled partial or complete payment of the principal amount outstanding on a mortgage or other debt before it is due.
Prepayment risk. The risk that falling interest rates will lead to heavy prepayments of mortgage or other loans-forcing the investor to reinvest at lower prevailing rates.
Primary market. The market for new issues.
Principal. The face amount (par value) of a bond, payable at maturity.
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Q
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R
Ratings. Designations used by credit rating agencies to give relative indications of credit quality. Municipal bonds rated Baa or BBB and above are considered to be investment-grade.
Registered bond. A bond whose owner is registered with the issuer or its agent. Transfer of ownership can only be accomplished when the securities are properly endorsed by the registered owner.
Reinvestment risk. The risk that interest income or principal repayments will have to be reinvested at lower rates in a declining rate environment.
REMIC (Real Estate Mortgage Investment Conduit). Because of changes in the 1986 Tax Reform Act, most CMOs are now issued in REMIC form to create certain tax advantages for the issuer. The terms REMIC and CMO are now used interchangeably.
Revenue bond. A municipal bond payable from revenues derived from tolls, charges or rents paid by users of the facility constructed with the proceeds of the bond issue.
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S
Secondary market. Market for issues previously offered or sold.
Settlement date. The date for the delivery of securities and payment of funds.
Sinking fund. Money set aside by an issuer of bonds on a regular basis, for the specific purpose of redeeming debt.
Swap. The sale of a block of bonds and the purchase of another block of similar market value. Swaps may be made to establish a tax loss, upgrade credit quality, extend or shorten maturity, etc.
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T
Trade date. The date when the purchase or sale of a bond is executed.
Transfer agent. A party appointed by an issuer to maintain records of securities owners, to cancel and issue certificates and to address issues arising from lost, destroyed or stolen certificates.
Trustee. A bank designated by the issuer as the custodian of funds and official representative of bondholders.
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U
Unit investment trust (UIT). Investment funds created with a fixed portfolio of investments that never changes over the life of the trust. They are created by brokerage houses, and are liquidated as investments within the trust are paid off. They provide a steady, periodic flow of income to investors.
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V
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W
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X
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Y
Yield. The annual percentage rate of return earned on a security. Yield is a function of a security's purchase price and coupon interest rate.
Yield curve. A line tracing relative yields on a type of security over a spectrum of maturities ranging from three months to 30 years.
Yield to call. A yield on a security calculated by assuming that interest payments will be paid until the call date, when the security will be redeemed at the call price.
Yield to maturity. A yield based on the assumption that the security remains outstanding to maturity. It represents the total of coupon payments until maturity, plus interest on interest, and whatever gain or loss is realized from the security at maturity.
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Z
Zero-coupon bond. A bond where no periodic interest payments are made. The investor receives one payment, which includes principal and interest, at redemption (call or maturity). (See "discount note.")
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Tripp & Co., Inc. 635 Palmer Ave. West Keansburg , NJ 07734 888-48TRIPP(87477) |
Tripp & Co., Inc. |
Tripp & Co., Inc. 751-2 Coates Avenue Holbrook , NY 11741 866-874-7726 |
Tripp & Co., Inc.
40 Rector Street
New York , NY 10006
877-38TRIPP(87477)
Member NASD, SIPC
E Mail: info@trippco.com
