Definition of ISO 9000

ISO 9000

a comprehensive series of international quality standards
that define the various design, material procurement,
production, quality-control, and delivery requirements and
procedures necessary to produce quality products and services

Comparison universe

The collection of money managers of similar investment style used for assessing
relative performance of a portfolio manager.

Poison pill

Anit-takeover device that gives a prospective acquiree's shareholders the right to buy shares of the
firm or shares of anyone who acquires the firm at a deep discount to their fair market value. Named after the
cyanide pill that secret agents are instructed to swallow if capture is imminent.

Poison put

A covenant allowing the bondholder to demand repayment in the event of a hostile merger.

ISO 14000

a series of international standards that are designed
to support a company’s environmental protection
and pollution prevention goals in balance with socioeconomic
needs

poison pill

Measure taken by a target firm to avoid acquisition;
for example, the right for existing shareholders to buy additional
shares at an attractive price if a bidder acquires a large holding.

Poison put

A covenant allowing the bondholder to demand repayment in the event of a hostile merger.

ADF (annuity discount factor)

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

control premium

the additional value inherent in the control interest as contrasted to a minority interest, which reflects its power of control

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.

NPV (net present value of cash flows)

Same as PV, but usually includes a subtraction for an initial cash outlay.

PV (present value of cash flows)

the value in today’s dollars of cash flows that occur in different time periods.
present value factor equal to the formula 1/(1 - r)n, where n is the number of years from the valuation date to the cash flow and r is the discount rate.
For business valuation, n should usually be midyear, i.e., n = 0.5, 1.5, . . .

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.

Acquiree

A firm that is being acquired.

Active portfolio strategy

A strategy that uses available information and forecasting techniques to seek a
better performance than a portfolio that is simply diversified broadly. Related: passive portfolio strategy

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.

Affirmative covenant

A bond covenant that specifies certain actions the firm must take.

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.

American shares

Securities certificates issued in the U.S. by a transfer agent acting on behalf of the foreign
issuer. The certificates represent claims to foreign equities.

American-style option

An option contract that can be exercised at any time between the date of purchase and
the expiration date. Most exchange-traded options are American style.

Appraisal rights

A right of shareholders in a merger to demand the payment of a fair price for their shares, as
determined independently.

Assets requirements

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

At-the-money

An option is at-the-money if the strike price of the option is equal to the market price of the
underlying security. For example, if xyz stock is trading at 54, then the xyz 54 option is at-the-money.

Auction markets

markets in which the prevailing price is determined through the free interaction of
prospective buyers and sellers, as on the floor of the stock exchange.

Authorized shares

Number of shares authorized for issuance by a firm's corporate charter.

Average collection period, or days' receivables

The ratio of accounts receivables to sales, or the total
amount of credit extended per dollar of daily sales (average AR/sales * 365).

Bank collection float

The time that elapses between when a check is deposited into a bank account and when the funds are available to the depositor, during which period the bank is collecting payment from the payer's bank.

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.

Bank for International Settlements (BIS)

An international bank headquartered in Basel, Switzerland, which
serves as a forum for monetary cooperation among several European central banks, the Bank of Japan, and the
U.S. Federal Reserve System. Founded in 1930 to handle the German payment of World War I reparations, it
now monitors and collects data on international banking activity and promulgates rules concerning
international bank regulation.

BARRA's performance analysis (PERFAN)

A method developed by BARRA, a consulting firm in
Berkeley, Calif. It is commonly used by institutional investors applying performance attribution analysis to
evaluate their money managers' performances.

Bear market

Any market in which prices are in a declining trend.

Black market

An illegal market.

Bond value

With respect to convertible bonds, the value the security would have if it were not convertible
apart from the conversion option.

Book value

A company's book value is its total assets minus intangible assets and liabilities, such as debt. A
company's book value might be more or less than its market value.

Book value per share

The ratio of stockholder equity to the average number of common shares. Book value
per share should not be thought of as an indicator of economic worth, since it reflects accounting valuation
(and not necessarily market valuation).

Bottom-up equity management style

A management style that de-emphasizes the significance of economic
and market cycles, focusing instead on the analysis of individual stocks.

Brokered market

A market where an intermediary offers search services to buyers and sellers.

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).

Bull market

Any market in which prices are in an upward trend.

Bulldog market

The foreign market in the United Kingdom.

Buy

To purchase an asset; taking a long position.

Buy in

To cover, offset or close out a short position. Related: evening up, liquidation.

Buy limit order

A conditional trading order that indicates a security may be purchased only at the designated
price or lower.
Related: Sell limit order.

Buy on close

To buy at the end of the trading session at a price within the closing range.

Buy on margin

A transaction in which an investor borrows to buy additional shares, using the shares
themselves as collateral.

Buy on opening

To buy at the beginning of a trading session at a price within the opening range.

Buy-and-hold strategy

A passive investment strategy with no active buying and selling of stocks from the
time the portfolio is created until the end of the investment horizon.

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.

Buying the index

Purchasing the stocks in the S&P 500 in the same proportion as the index to achieve the
same return.

Buyout

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

Buy-back

Another term for a repo.

Buy-side analyst

A financial analyst employed by a non-brokerage firm, typically one of the larger money
management firms that purchase securities on their own accounts.

Call money rate

Also called the broker loan rate , the interest rate that banks charge brokers to finance
margin loans to investors. The broker charges the investor the call money rate plus a service charge.

Capital market

The market for trading long-term debt instruments (those that mature in more than one year).

Capital market efficiency

Reflects the relative amount of wealth wasted in making transactions. An efficient
capital market allows the transfer of assets with little wealth loss. See: efficient market hypothesis.

Capital market imperfections view

The view that issuing debt is generally valuable but that the firm's
optimal choice of capital structure is a dynamic process that involves the other views of capital structure (net
corporate/personal tax, agency cost, bankruptcy cost, and pecking order), which result from considerations of
asymmetric information, asymmetric taxes, and transaction costs.

Capital market line (CML)

The line defined by every combination of the risk-free asset and the market portfolio.

Carrying value

Book value.

Cash delivery

The provision of some futures contracts that requires not delivery of underlying assets but
settlement according to the cash value of the asset.

Cash discount

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

Cash flow after interest and taxes

Net income plus depreciation.

Cash markets

Also called spot markets, these are markets that involve the immediate delivery of a security
or instrument.
Related: derivative markets.

Cash-surrender value

An amount the insurance company will pay if the policyholder ends a whole life
insurance policy.

Collection float

The negative float that is created between the time when you deposit a check in your account
and the time when funds are made available.

Collection fractions

The percentage of a given month's sales collected during the month of sale and each
month following the month of sale.

Collection policy

procedures followed by a firm in attempting to collect accounts receivables.

Committee, AIMR Performance Presentation Standards Implementation Committee

The Association for investment Management and Research (AIMR)'s performance Presentation standards Implementation
Committee is charged with the responsibility to interpret, revise and update the AIMR performance
Presentation standards (AIMR-PPS(TM)) for portfolio performance presentations.

Common market

An agreement between two or more countries that permits the free movement of capital
and labor as well as goods and services.

Common stock market

The market for trading equities, not including preferred stock.

Complete capital market

A market in which there is a distinct marketable security for each and every
possible outcome.

Complete portfolio

The entire portfolio, including risky and risk-free assets.

Comprehensive due diligence investigation

The investigation of a firm's business in conjunction with a
securities offering to determine whether the firm's business and financial situation and its prospects are
adequately disclosed in the prospectus for the offering.

Concentration services

Movement of cash from different lockbox locations into a single concentration
account from which disbursements and investments are made.

Confirmation

he written statement that follows any "trade" in the securities markets. Confirmation is issued
immediately after a trade is executed. It spells out settlement date, terms, commission, etc.

Control

50% of the outstanding votes plus one vote.

Controlled disbursement

A service that provides for a single presentation of checks each day (typically in
the early part of the day).

Controlled foreign corporation (CFC)

A foreign corporation whose voting stock is more than 50% owned
by U.S. stockholders, each of whom owns at least 10% of the voting power.

Controller

The corporate manager responsible for the firm's accounting activities.

Conversion value

Also called parity value, the value of a convertible security if it is converted immediately.

Corner A Market

To purchase enough of the available supply of a commodity or stock in order to
manipulate its price.

Cum rights

With rights.

Dealer market

A market where traders specializing in particular commodities buy and sell assets for their
own accounts.

Debt market

The market for trading debt instruments.

Dedicating a portfolio

Related: cash flow matching.

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.

Defined benefit plan

A pension plan in which the sponsor agrees to make specified dollar payments to
qualifying employees. The pension obligations are effectively the debt obligation of the plan sponsor.
Related: defined contribution plan

Defined contribution plan

A pension plan in which the sponsor is responsible only for making specified
contributions into the plan on behalf of qualifying participants. Related: defined benefit plan
Delayed issuance pool Refers to MBSs that at the time of issuance were collateralized by seasoned loans
originated prior to the MBS pool issue date.

Delivery

The tender and receipt of an actual commodity or financial instrument in settlement of a futures contract.

Delivery notice

The written notice given by the seller of his intention to make delivery against an open, short
futures position on a particular date. Related: notice day

Delivery options

The options available to the seller of an interest rate futures contract, including the quality
option, the timing option, and the wild card option. delivery options make the buyer uncertain of which
Treasury Bond will be delivered or when it will be delivered.

Delivery points

Those points designated by futures exchanges at which the financial instrument or
commodity covered by a futures contract may be delivered in fulfillment of such contract.

Delivery price

The price fixed by the Clearing house at which deliveries on futures are in invoiced; also the
price at which the futures contract is settled when deliveries are made.

Delivery versus payment

A transaction in which the buyer's payment for securities is due at the time of
delivery (usually to a bank acting as agent for the buyer) upon receipt of the securities. The payment may be
made by bank wire, check, or direct credit to an account.

Derivative markets

markets for derivative instruments.

Direct search market

buyers and sellers seek each other directly and transact directly.

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.

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