Definition of Intestate

Intestate

This means dying without a will, in which case the provincial laws of the province in which the death occurred apply to the manner in which assets will be distributed. In other words, if you don't write your own will, the government will do it for you after your death and it may not be as you would have wished.

Gordon model

present value of a perpetuity with growth.
The end-ofyear Gordon model formula is: 1/(r - g)
and the midyear formula is: SQRT(1 + r)/(r - g).

Abandonment option

The option of terminating an investment earlier than originally planned.

Acquisition of assets

A merger or consolidation in which an acquirer purchases the selling firm's assets.

Act of state doctrine

This doctrine says that a nation is sovereign within its own borders and its domestic
actions may not be questioned in the courts of another nation.

After-tax profit margin

The ratio of net income to net sales.

After-tax real rate of return

Money after-tax rate of return minus the inflation rate.

Assets

A firm's productive resources.

Assets requirements

A common element of a financial plan that describes projected capital spending and the
proposed uses of net working capital.

Blue-sky laws

State laws covering the issue and trading of securities.

Builder buydown loan

A mortgage loan on newly developed property that the builder subsidizes during the
early years of the development. The builder uses cash to buy down the mortgage rate to a lower level than the
prevailing market loan rate for some period of time. The typical buydown is 3% of the interest-rate amount
for the first year, 2% for the second year, and 1% for the third year (also referred to as a 3-2-1 buydown).

Bulldog bond

Foreign bond issue made in London.

Bulldog market

The foreign market in the United Kingdom.

Buydowns

Mortgages in which monthly payments consist of principal and interest, with portions of these
payments during the early period of the loan being provided by a third party to reduce the borrower's monthly
payments.

Buyout

Purchase of a controlling interest (or percent of shares) of a company's stock. A leveraged buy-out is
done with borrowed money.

Cash flow after interest and taxes

Net income plus depreciation.

Collective wisdom

The combination of all of the individual opinions about a stock's or security's value.

Common stock/other equity

Value of outstanding common shares at par, plus accumulated retained
earnings. Also called shareholders' equity.

Continuous random variable

A random value that can take any fractional value within specified ranges, as
contrasted with a discrete variable.

Cramdown

The ability of the bankruptcy court to confirm a plan of reorganization over the objections of
some classes of creditors.

Crown jewel

A particularly profitable or otherwise particularly valuable corporate unit or asset of a firm.

Current assets

Value of cash, accounts receivable, inventories, marketable securities and other assets that
could be converted to cash in less than 1 year.

Customary payout ratios

A range of payout ratios that is typical based on an analysis of comparable firms.

Discount window

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

Discrete random variable

A random variable that can take only a certain specified set of discrete possible
values - for example, the positive integers 1, 2, 3, . . .

Distributed

after a Treasury auction, there will be many new issues in dealer's hands. As those issues are
sold, it is said that they are distributed.

Dividend payout ratio

Percentage of earnings paid out as dividends.

Doctrine of sovereign immunity

doctrine that says a nation may not be tried in the courts of another country
without its consent.

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.

Dollar bonds

Municipal revenue bonds for which quotes are given in dollar prices. Not to be confused with
"U.S. dollar" bonds, a common term of reference in the Eurobond market.

Dollar duration

The product of modified duration and the initial price.

Dollar price of a bond

Percentage of face value at which a bond is quoted.

Dollar return

The return realized on a portfolio for any evaluation period, including (1) the change in market
value of the portfolio and (2) any distributions made from the portfolio during that period.

Dollar roll

Similar to the reverse repurchase agreement - a simultaneous agreement to sell a security held in a
portfolio with purchase of a similar security at a future date at an agreed-upon price.

Dollar safety margin

The dollar equivalent of the safety cushion for a portfolio in a contingent immunization
strategy.

Dollar-weighted rate of return

Also called the internal rate of return, the interest rate that will make the
present value of the cash flows from all the subperiods in the evaluation period plus the terminal market value
of the portfolio equal to the initial market value of the portfolio.

Domestic International Sales Corporation (DISC)

A U.S. corporation that receives a tax incentive for
export activities.

Domestic market

Part of a nation's internal market representing the mechanisms for issuing and trading
securities of entities domiciled within that nation. Compare external market and foreign market.

Don't know (DK, Dked)

"don't know the trade." A Street expression used whenever one party lacks
knowledge of a trade or receives conflicting instructions from the other party.

Double-declining-balance depreciation

Method of accelerated depreciation.

Double-dip lease

A cross-border lease in which the disparate rules of the lessor's and lessee's countries let
both parties be treated as the owner of the leased equipment for tax purposes.

Double-tax agreement

Agreement between two countries that taxes paid abroad can be offset against
domestic taxes levied on foreign dividends.

Doubling option

A sinking fund provision that may allow repurchase of twice the required number of bonds
at the sinking fund call price.

Dow Jones industrial average

This is the best known U.S.index of stocks. It contains 30 stocks that trade on
the New York Stock Exchange. The dow, as it is called, is a barometer of how shares of the largest
U.S.companies are performing. There are thousands of investment indexes around the world for stocks,
bonds, currencies and commodities.

Down-and-in option

Barrier option that comes into existence if asset price hits a barrier.

Down-and-out option

Barrier option that expires if asset price hits a barrier.

Downgrade

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

Employee stock ownership plan (ESOP)

A company contributes to a trust fund that buys stock on behalf of
employees.

Endogenous variable

A value determined within the context of a model.

Endowment funds

Investment funds established for the support of institutions such as colleges, private
schools, museums, hospitals, and foundations. The investment income may be used for the operation of the
institution and for capital expenditures.

Eurodollar

This is an American dollar that has been deposited in a European bank or an U.S. bank branch
located in Europe. It got there as a result of payments made to overseas companies for merchandise.

Eurodollar bonds

Eurobonds denominated in U.S.dollars.

Exchange of assets

Acquisition of another company by purchase of its assets in exchange for cash or stock.

Feasible target payout ratios

Payout ratios that are consistent with the availability of excess funds to make
cash dividend payments.

Financial assets

Claims on real assets.

Fixed-dollar obligations

Conventional bonds for which the coupon rate is set as a fixed percentage of the par value.

Fixed-dollar security

A nonnegotiable debt security that can be redeemed at some fixed price or according to
some schedule of fixed values, e.g., bank deposits and government savings bonds.

Full-payout lease

See: financial lease.

Goodwill

Excess of the purchase price over the fair market value of the net assets acquired under purchase
accounting.

Government bond

See: government securities.

Government National Mortgage Association (Ginnie Mae)

A wholly owned U.S. government corporation
within the Department of Housing & Urban Development. Ginnie Mae guarantees the timely payment of
principal and interest on securities issued by approved servicers that are collateralized by FHA-issued, VAguaranteed,
or Farmers Home Administration (FmHA)-guaranteed mortgages.

Government sponsored enterprises

Privately owned, publicly chartered entities, such as the Student Loan
Marketing Association, created by Congress to reduce the cost of capital for certain borrowing sectors of the
economy including farmers, homeowners, and students.

Government securities

Negotiable U.S. Treasury securities.

Gross domestic product (GDP)

The market value of goods and services produced over time including the
income of foreign corporations and foreign residents working in the U.S., but excluding the income of U.S.
residents and corporations overseas.

Leveraged buyout (LBO)

A transaction used for taking a public corporation private financed through the use
of debt funds: bank loans and bonds. Because of the large amount of debt relative to equity in the new
corporation, the bonds are typically rated below investment grade, properly referred to as high-yield bonds or
junk bonds. Investors can participate in an LBO through either the purchase of the debt (i.e., purchase of the
bonds or participation in the bank loan) or the purchase of equity through an LBO fund that specializes in
such investments.

London International Financial Futures Exchange (LIFFE)

A London exchange where Eurodollar futures
as well as futures-style options are traded.

Long-term assets

Value of property, equipment and other capital assets minus the depreciation. This is an
entry in the bookkeeping records of a company, usually on a "cost" basis and thus does not necessarily reflect
the market value of the assets.

London International Financial Futures Exchange (LIFFE)

London exchange where Eurodollar futures as well as futures-style options are traded.

Management buyout (MBO)

Leveraged buyout whereby the acquiring group is led by the firm's management.

Matador market

The foreign market in Spain.

Net assets

The difference between total assets on the one hand and current liabilities and noncapitalized longterm
liabilities on the other hand.

Non-reproducible assets

A tangible asset with unique physical properties, like a parcel of land, a mine, or a
work of art.

Normal random variable

A random variable that has a normal probability distribution.

Option writer

Option seller.

Other capital

In the balance of payments, other capital is a residual category that groups all the capital
transactions that have not been included in direct investment, portfolio investment, and reserves categories. It
is divided into long-term capital and short-term capital and, because of its residual status, can differ from
country to country. Generally speaking, other long-term capital includes most non-negotiable instruments of a
year or more like bank loans and mortgages. other short-term capital includes financial assets of less than a
year such as currency, deposits, and bills.

Other current assets

Value of non-cash assets, including prepaid expenses and accounts receivable, due
within 1 year.

Other long term liabilities

Value of leases, future employee benefits, deferred taxes and other obligations
not requiring interest payments that must be paid over a period of more than 1 year.

Other sources

Amount of funds generated during the period from operations by sources other than
depreciation or deferred taxes. Part of Free cash flow calculation.

Paydown

In a Treasury refunding, the amount by which the par value of the securities maturing exceeds that
of those sold.

Payout ratio

Generally, the proportion of earnings paid out to the common stockholders as cash dividends.
More specifically, the firm's cash dividend divided by the firm's earnings in the same reporting period.

Publicly traded assets

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

Quick assets

Current assets minus inventories.

Random variable

A function that assigns a real number to each and every possible outcome of a random experiment.

Random walk

Theory that stock price changes from day to day are at random; the changes are independent
of each other and have the same probability distribution. Many believers of the random walk theory believe
that it is impossible to outperform the market consistently without taking additional risk.

Randomized strategy

A strategy of introducing into the decision-making process a random element that is
designed to reduce the information content of the decision-maker's observed choices.

Real assets

Identifiable assets, such as buildings, equipment, patents, and trademarks, as distinguished from a
financial obligation.

Reproducible assets

A tangible asset with physical properties that can be reproduced, such as a building or
machinery.

Residual assets

assets that remain after sufficient assets are dedicated to meet all senior debtholder's claims in full.

Return on assets (ROA)

Indicator of profitability. Determined by dividing net income for the past 12 months
by total average assets. Result is shown as a percentage. ROA can be decomposed into return on sales (net
income/sales) multiplied by asset utilization (sales/assets).

Return on total assets

The ratio of earnings available to common stockholders to total assets.

Soft dollars

The value of research services that brokerage houses supply to investment managers "free of
charge" in exchange for the investment manager's business/commissions.

Target payout ratio

A firm's long-run dividend-to-earnings ratio. The firm's policy is to attempt to pay out a
certain percentage of earnings, but it pays a stated dollar dividend and adjusts it to the target as base-line
increases in earnings occur.

Tax haven

A nation with a moderate level of taxation and/or liberal tax incentives for undertaking specific
activities such as exporting or investing.

Top-down equity management style

A management style that begins with an assessment of the overall
economic environment and makes a general asset allocation decision regarding various sectors of the financial
markets and various industries. The bottom-up manager, in contrast, selects the specific securities within the
favored sectors.

Total dollar return

The dollar return on a nondollar investment, which includes the sum of any
dividend/interest income, capital gains or losses, and currency gains or losses on the investment.
See also: total return.

Underwrite

To guarantee, as to guarantee the issuer of securities a specified price by entering into a purchase
and sale agreement. To bring securities to market.

Underwriter

A party that guarantees the proceeds to the firm from a security sale, thereby in effect taking
ownership of the securities. Or, stated differently, a firm, usually an investment bank, that buys an issue of
securities from a company and resells it to investors.

Window contract

A guaranteed investment contract purchased with deposits over some future designated
time period (the "window"), usually between 3 and 12 months. All deposits made are guaranteed the same
credit rating.
Related: bullet contract.

Without

If 70 were bid in the market and there was no offer, the quote would be "70 bid without." The
expression "without" indicates a one-way market.

Without recourse

without the lender having any right to seek payment or seize assets in the event of
nonpayment from anyone other than the party (such as a special-purpose entity) specified in the debt contract.

Write-down

Decreasing the book value of an asset if its book value is overstated compared to current market values.

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