Bonds, Securities, and Financial Instruments

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Finance - Personal Finance

georgepetenjk Created by 10 mon ago

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The parity price of stock is the value which determines the value at which the stock must be priced to equal the value of the bond an investor already holds.

Open-end indenture bonds allow a corporation to issue more bonds using the existing collateral equally to previously issued bonds.

Closed-end indenture bonds prevent a corporation to issue more bonds using the existing collateral equally to previously issued bonds. The new bonds must either be new collateral or as a subordinate to the collateral.

Bonds are rated by the risk of the company issuing them; several aspects of a company are measured to determine a debt rating, including cash flow, debt outstanding, collateral, industry and economic trends, and management, to name a few.

Exchange Traded Notes (ETNs) are debt securities that base a maturity payment on the performance of an underlying security or index. ETNs do not make coupon or interest payments during the time an investor holds the ETN.

Auction Rate Securities are long-term securities that are traded as short-term securities; the interest rate paid will be reset regularly.

Variable Rate Demand Obligations have the interest rate set to price par. VRDOs can be issued as debt securities or preferred stock.

Overlapping Debt is when different municipal authorities draw revenue from the same collection of taxpayers.

A Series HH bond may only be purchased by trading in matured securities bonds. They may not be purchased from cash.

Treasury Inflation Protected Securities offer investors protection from inflation as they are sold with a fixed rate while their principle adjusts semiannually to reflect changes in the consumer price index (inflation.)

A Collateralized Mortgage Obligation is a mortgage-backed security issued by private companies as well as FHLMC and FNMA; they are structured similar to pass-through certificates.

Principal-only CMOs receives only the principal payments made on the underlying mortgage; it is sold at a discount value on the market due to lack of interest payments.

Interest-only CMOs receive the interest payments made by homeowners in the pool of underlying mortgages and will also sell at a discount value due to amortization of the underlying security.

Planned amortization CMOs are paid off first and offer the most protection against prepayment risk and extension risk.

Targeted Amortization CMOs only offer investors protection from prepayment risk; if the principal payments are made too quickly, they will be transferred to a support class.

Private-label CMOs are issued by investment banks and the payment of interest and principal payments are the responsibility of the issuing investment bank.

With a fixed repurchase agreement, the borrower (seller) agrees to repurchase the securities at a fixed price on a specified date.

With an open repurchase agreement, the date of the repurchase is not fixed and the open repurchase agreement becomes a demand note for the lender.

The discount rate is the interest rate banks and financial institutions borrow at from the Federal Reserve bank.

The federal funds rate is the rate banks charge each other for overnight loans.

The broker call loan rate is the interest rate that banks charge on loans to broker dealers to finance margin purchases.

The prime rate is the rate banks charge interest on their most creditworthy corporate customers on loans.

Bankers' Acceptance act as a line of credit or a postdated check which will be cleared by the issuing bank the day it becomes due to whomever presents it for payment.

A repurchase agreement is a fully collateralized loan made between a dealer and a large institutional investor, usually with U.S. government securities as collateral.

A reverse repurchase agreement is when the institutional investors initiates he transaction by selling the securities to the dealer and agrees to repurchase them at a later date.

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