Definition of ad hoc discount

ad hoc discount

a price concession made under competitive pressure (real or imagined) that does not relate to quantity purchased

ADF (annuity discount factor)

the present value of a finite stream of cash flows for every beginning $1 of cash flow.

DLOC (discount for lack of control)

an amount or percentage deducted from a pro rata share of the value of 100% of an equity interest in a business, to reflect the absence of some or all of the powers of control.

DLOM (discount for lack of marketability)

an amount or percentage deducted from an equity interest to reflect lack of marketability.

discount rate

the rate of return on investment that would be required by a prudent investor to invest in an asset with a specific level risk. Also, a rate of return used to convert a monetary sum, payable or receivable in the future, into present value.

fractional interest discount

the combined discounts for lack of control and marketability. g the constant growth rate in cash flows or net income used in the adF, Gordon model, or present value factor.

QMDM (quantitative marketability discount model)

model for calculating DLOM for minority interests r the discount rate

Accretion (of a discount)

In portfolio accounting, a straight-line accumulation of capital gains on discount
bond in anticipation of receipt of par at maturity.

Additional hedge

A protection against borrower fallout risk in the mortgage pipeline.

Adjustable rate preferred stock (ARPS)

Publicly traded issues that may be collateralized by mortgages and MBSs.

Adjusted present value (APV)

The net present value analysis of an asset if financed solely by equity
(present value of un-levered cash flows), plus the present value of any financing decisions (levered cash
flows). In other words, the various tax shields provided by the deductibility of interest and the benefits of
other investment tax credits are calculated separately. This analysis is often used for highly leveraged
transactions such as a leverage buy-out.

Administrative pricing rules

IRS rules used to allocate income on export sales to a foreign sales corporation.

Advance commitment

A promise to sell an asset before the seller has lined up purchase of the asset. This
seller can offset risk by purchasing a futures contract to fix the sales price.

Adverse selection

A situation in which market participation is a negative signal.

American Depositary Receipts (ADRs)

Certificates issued by a U.S. depositary bank, representing foreign
shares held by the bank, usually by a branch or correspondent in the country of issue. One adR may
represent a portion of a foreign share, one share or a bundle of shares of a foreign corporation. If the adR's
are "sponsored," the corporation provides financial information and other assistance to the bank and may
subsidize the administration of the adRs. "Unsponsored" adRs do not receive such assistance. adRs carry
the same currency, political and economic risks as the underlying foreign share; the prices of the two, adjusted for the SDR/ordinary ratio, are kept essentially identical by arbitrage. American depositary shares(adSs) are
a similar form of certification.

Balance of trade

Net flow of goods (exports minus imports) between countries.

Bank discount basis

A convention used for quoting bids and offers for treasury bills in terms of annualized
yield , based on a 360-day year.

Basket trades

Related: Program trades.

Bill of lading

A contract between the exporter and a transportation company in which the latter agrees to
transport the goods under specified conditions which limit its liability. It is the exporter's receipt for the goods
as well as proof that goods have been or will be received.

Block trade

A large trading order, defined on the New York Stock Exchange as an order that consists of
10,000 shares of a given stock or a total market value of $200,000 or more.

Brady bonds

Bonds issued by emerging countries under a debt reduction plan.

Bull spread

A spread strategy in which an investor buys an out-of-the-money put option, financing it by
selling an out-of-the money call option on the same underlying.

Canadian agencies

Agency banks established by Canadian banks in the U.S.

Cash discount

An incentive offered to purchasers of a firm's product for payment within a specified time
period, such as ten days.

Counter trade

The exchange of goods for other goods rather than for cash; barter.

Credit spread

Related:Quality spread

Cumulative Translation Adjustment (CTA) account

An entry in a translated balance sheet in which gains
and/or losses from translation have been accumulated over a period of years. The CTA account is required
under the FASB No. 52 rule.

Day trading

Refers to establishing and liquidating the same position or positions within one day's trading.

Dead cat bounce

A small upmove in a bear market.

Deep-discount bond

A bond issued with a very low coupon or no coupon and selling at a price far below par
value. When the bond has no coupon, it's called a zero coupon bond.

Demand shock

An event that affects the demand for goods in services in the economy.

Discount

Referring to the selling price of a bond, a price below its par value. Related: premium.

Discount bond

Debt sold for less than its principal value. If a discount bond pays no interest, it is called a
zero coupon bond.

Discount factor

Present value of $1 received at a stated future date.

Discount period

The period during which a customer can deduct the discount from the net amount of the bill
when making payment.

Discount rate

The interest rate that the Federal Reserve charges a bank to borrow funds when a bank is
temporarily short of funds. Collateral is necessary to borrow, and such borrowing is quite limited because the
Fed views it as a privilege to be used to meet short-term liquidity needs, and not a device to increase earnings.

Discount securities

Non-interest-bearing money market instruments that are issued at a discount and
redeemed at maturity for full face value, e.g. U.S. Treasury bills.

Discount window

Facility provided by the Fed enabling member banks to borrow reserves against collateral
in the form of governments or other acceptable paper.

Discounted basis

Selling something on a discounted basis is selling below what its value will be at maturity,
so that the difference makes up all or part of the interest.

Discounted cash flow (DCF)

Future cash flows multiplied by discount factors to obtain present values.

Discounted dividend model (DDM)

A formula to estimate the intrinsic value of a firm by figuring the
present value of all expected future dividends.

Discounted payback period rule

An investment decision rule in which the cash flows are discounted at an
interest rate and the payback rule is applied on these discounted cash flows.

Discounting

Calculating the present value of a future amount. The process is opposite to compounding.

Dividend discount model (DDM)

A model for valuing the common stock of a company, based on the
present value of the expected cash flows.

Documented discount notes

Commercial paper backed by normal bank lines plus a letter of credit from a
bank stating that it will pay off the paper at maturity if the borrower does not. Such paper is also referred to as
LOC (letter of credit) paper.

Downgrade

A classic negative change in ratings for a stock, and or other rated security.

Effective spread

The gross underwriting spread adjusted for the impact of the announcement of the common
stock offering on the firm's share price.

Flat trades

1) A bond in default trades flat; that is, the price quoted covers both principal and unpaid,
accrued interest.
2) Any security that trades without accrued interest or at a price that includes accrued
interest is said to trade flat.

Floor trader

A member who generally trades only for his own account, for an account controlled by him or
who has such a trade made for him. Also referred to as a "local".

Forward discount

A currency trades at a forward discount when its forward price is lower than its spot price.

Forward trade

A transaction in which the settlement will occur on a specified date in the future at a price
agreed upon the trade date.

Graduated-payment mortgages (GPMs)

A type of stepped-payment loan in which the borrower's payments
are initially lower than those on a comparable level-rate mortgage. The payments are gradually increased over
a predetermined period (usually 3,5, or 7 years) and then are fixed at a level-pay schedule which will be
higher than the level-pay amortization of a level-pay mortgage originated at the same time. The difference
between what the borrower actually pays and the amount required to fully amortize the mortgage is added to
the unpaid principal balance.

Gross spread

The fraction of the gross proceeds of an underwritten securities offering that is paid as
compensation to the underwriters of the offering.

Head & shoulders

In technical analysis, a chart formation in which a stock price reaches a peak and declines,
rises above its former peak and again declines and rises again but not to the second peak and then again
declines. The first and third peaks are shoulders, while the second peak is the formation's head. Technical
analysts generally consider a head and shoulders formation to be a very bearish indication.

Homemade dividend

Sale of some shares of stock to get cash that would be similar to receiving a cash dividend.

Homemade leverage

Idea that as long as individuals borrow (or lend) on the same terms as the firm, they can
duplicate the affects of corporate leverage on their own. Thus, if levered firms are priced too high, rational
investors will simply borrow on personal accounts to buy shares in unlevered firms.

Horizontal spread

The simultaneous purchase and sale of two options that differ only in their exercise date.

Informationless trades

Trades that are the result of either a reallocation of wealth or an implementation of an
investment strategy that only utilizes existing information.

Information-motivated trades

Trades in which an investor believes he or she possesses pertinent
information not currently reflected in the stock's price.

Insider trading

Trading by officers, directors, major stockholders, or others who hold private inside
information allowing them to benefit from buying or selling stock.

Intermarket spread swaps

An exchange of one bond for another based on the manager's projection of a
realignment of spreads between sectors of the bond market.

Intramarket sector spread

The spread between two issues of the same maturity within a market sector. For
instance, the difference in interest rates offered for five-year industrial corporate bonds and five-year utility
corporate bonds.

Investment grade bonds

A bond that is assigned a rating in the top four categories by commercial credit
rating companies. For example, S&P classifies investment grade bonds as BBB or higher, and Moodys'
classifies investment grade bonds as Ba or higher. Related: High-yield bond.

Ladder strategy

A bond portfolio strategy in which the portfolio is constructed to have approximately equal
amounts invested in every maturity within a given range.

Last trading day

The final day under an exchange's rules during which trading may take place in a particular
futures or options contract. Contracts outstanding at the end of the last trading day must be settled by delivery
of underlying physical commodities or financial instruments, or by agreement for monetary settlement
depending upon futures contract specifications.

Lead

Payment of a financial obligation earlier than is expected or required.

Lead manager

The commercial or investment bank with the primary responsibility for organizing syndicated
bank credit or bond issue. The lead manager recruits additional lending or underwriting banks, negotiates
terms of the issue with the issuer, and assesses market conditions.

Leading economic indicators

Economic series that tend to rise or fall in advance of the rest of the economy.

Load fund

A mutual fund with shares sold at a price including a large sales charge -- typically 4% to 8% of
the net amount indicated. Some "no-load" funds have distribution fees permitted by article 12b-1 of the
Investment Company Act; these are typically 0. 25%. A "true no-load" fund has neither a sales charge nor
Freddie Mac program, the aggregation that the fund purchaser receives some investment advice or other
service worthy of the charge.

Load-to-load

Arrangement whereby the customer pays for the last delivery when the next one is received.

Long straddle

A straddle in which a long position is taken in both a put and call option.

Matador market

The foreign market in Spain.

Maturity spread

The spread between any two maturity sectors of the bond market.

Net adjusted present value

The adjusted present value minus the initial cost of an investment.

Net advantage of refunding

The net present value of the savings from a refunding.

Net advantage to leasing

The net present value of entering into a lease financing arrangement rather than
borrowing the necessary funds and buying the asset.

Net advantage to merging

The difference in total post- and pre-merger market value minus the cost of the merger.

No load mutual fund

An open-end investment company, shares of which are sold without a sales charge.
There can be other distribution charges, however, such as Article 12B-1 fees. A true "no load" fund will have
neither a sales charge nor a distribution fee.

No-load fund

A mutual fund that does not impose a sales commission. Related: load fund

Non-tradables

Refer to goods and services produced and consumed domestically that are not close
substitutes to import or export goods and services.

Option-adjusted spread (OAS)

1) The spread over an issuer's spot rate curve, developed as a measure of
the yield spread that can be used to convert dollar differences between theoretical value and market price.
2) The cost of the implied call embedded in a MBS, defined as additional basis-yield spread. When added to the
base yield spread of an MBS without an operative call produces the option-adjusted spread.

Original issue discount debt (OID debt)

Debt that is initially offered at a price below par.

Philadelphia Stock Exchange (PHLX)

A securities exchange where American and European foreign
currency options on spot exchange rates are traded.

Posttrade benchmarks

Prices after the decision to trade.

Preauthorized electronic debits (PADs)

Debits to its bank account in advance by the payer. The payer's
bank sends payment to the payee's bank through the _ACH)Automated Clearing House (ACH) system.

Pre-trade benchmarks

Prices occurring before or at the decision to trade.

Program trades

Also called basket trades, orders requiring the execution of trades in a large number of
different stocks at as near the same time as possible. Related: block trade

Program trading

Trades based on signals from computer programs, usually entered directly from the trader's
computer to the market's computer system and executed automatically.

Public Securities Administration (PSA)

The trade association for primary dealers in U.S. government
securities, including MBSs.

Publicly traded assets

Assets that can be traded in a public market, such as the stock market.

Pure-discount bond

A bond that will make only one payment of principal and interest. Also called a zerocoupon
bond or a single-payment bond.

Quality spread

Also called credit spread, the spread between Treasury securities and non-Treasury securities
that are identical in all respects except for quality rating. For instance, the difference between yields on
Treasuries and those on single A-rated industrial bonds.

Registered trader

A member of the exchange who executes frequent trades for his or her own account.

Relative yield spread

The ratio of the yield spread to the yield level.

Reversing trade

Entering the opposite side of a currently held futures position to close out the position.

Risk-adjusted profitability

A probability used to determine a "sure" expected value (sometimes called a
certainty equivalent) that would be equivalent to the actual risky expected value.

Risk-adjusted

return Return earned on an asset normalized for the amount of risk associated with that asset.

Short straddle

A straddle in which one put and one call are sold.

Speculative grade bond

Bond rated Ba or lower by Moody's, or BB or lower by S&P, or an unrated bond.

Spot trade

The purchase and sale of a foreign currency, commodity, or other item for immediate delivery.

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