FIN-220 CH 6, 7

a bond's coupon payment dividend by its closing price

current yield

an agent who buys and sells securities from inventory

dealer

unsecured debt, usually with a maturity of under 10 years

debenture

the portion of a nominal interest rate or bond yield that represents compensation for the possibility of default

default risk premium

bond call provision prohibiting the company from redeeming the bond prior to a certain date

deferred call provision

NYSE members who act as dealers in particular stocks. Formerly known as "specialists"

designated market makers (DMMs)

the price of a bond including accrued interest. Also known as the full or invoice price. This is the price the buyer actually pays

dirty price

payments by a corporation to shareholders, made in either cash or stock

dividend

a model that determines the current price of a stock as its dividend next period dividend by the discount rate less the dividend growth rate

dividend growth model

a stock's expected cash dividend divided by its current price

dividend yield

websites that allow investors to trade directly with one another

electronic communications networks

the principal amount of a bond that is repaid at the end of the term.

face value

the relationship among nominal returns, real returns, and inflation

fisher effect

NYSE members who execute customer buy and sell orders

floor brokers

the written agreement between the corporation and the lender detailing the terms of the debt issue

indenture

the portion of a nominal interest rate that represents compensation for expected future inflation

inflation premium

the highest bid quotes and the lowest ask quotes for a security

inside quotes

the compensation investors demand for bearing interest rate risk

interest rate risk premium

stock with dividend priority over common stock, normally with a fixed dividend rate, sometimes without voting rights

preferred stock

the market in which new securities are originally sold to investors

primary market

a part of the indenture limiting certain actions that might be taken during the term of the loan, usually to protect the lender's interest

protective covenant

a grant of authority by a shareholder allowing another individual to vote his or her shares

proxy

interest rates or rates of return that have been adjusted for inflation

real rates

the registrar of a company records who owns each bond, and bond payments are made directly to the owner of record

registered form

the market in which previously issued securities are traded among investors

secondary market

an account managed by the bond trustee for early bond redemption

sinking fund

a procedure in which a shareholder may cast all votes for each member of the board of directors

straight voting

Investment firms that are active participants in stocks assigned to them. Their job is to make a one-sided market (i.e., offering to either buy or sell). They trade purely for their own accounts.

supplemental liquidity providers (SLPs)

the portion of a nominal interest rate or bond yield that represents compensation for unfavorable tax status

taxability premium

the relationship between nominal interest rates on default-free, pure discount securities. and time to maturity; that is, the pure time value of money

term structure of interest rates

a fixed place on the exchange floor where the DMM operates

DMM's post

a procedure in which a shareholder may cast all votes for one member of the board of directors

cumulative voting

the price a dealer is willing to take for a security

asked price

a bond issued without record of the owner's name; payment is made to whomever holds the bond

bearer form

the price a dealer is willing to pay for a security

bid price

the difference between the bid price and the asked price

bid-ask spread

an agent who arranges security transactions among investors

broker

the amount by which the call price exceeds the par value of the bond

call premium

bond during period in which it cannot be redeemed by the issuer

call protected bond

agreement giving the issuer the option to repurchase a bond at a specific price prior to maturity

call provision

the dividend growth rate, or the rate at which the value of an investment grows

capital gains yield

the price of a bond net of accrued interest; this is the price that is typically quoted

clean price

equity without priority for dividends or in bankruptcy

common stock

the stated interest payment made on a bond

coupon

the annual coupon divided by the face value of a bond

coupon rate

the portion of a nominal interest rate or bond yield that represents compensation for lack of liquidity

liquidity premium

specified date on which the principal amount of a bond is paid

maturity

as of 2006, a member is the owner of a trading license on the NYSE

member

interest rates or rates of return that have not been adjusted for inflation

nominal rates

the flow of customer orders to buy and sell securities

order flow

the principal amount of a bond that is repaid at the end of the term

par value

a plot of the yields on treasury notes and bonds relative to maturity

treasury yield curve

the rate required in the market on a bond

yield to maturity

a bond that makes no coupon payments, and thus is initially priced at a deep discount

zero coupon bond