Definition of Pre-existing medical condition (Credit Insurance)

Pre-existing medical condition (Credit Insurance)

A medical condition that existed before you became insured. Most policies exclude benefits if the condition is related to the event that triggers a claim if occurs within a certain period (6-12 months) after you became insured.

control premium

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

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, . . .

Accelerated depreciation

Any depreciation method that produces larger deductions for depreciation in the
early years of a project's life. Accelerated cost recovery system (ACRS), which is a depreciation schedule
allowed for tax purposes, is one such example.

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.

Auction rate preferred stock (ARPS)

Floating rate preferred stock, the dividend on which is adjusted every
seven weeks through a Dutch auction.

Best-interests-of-creditors test

The requirement that a claim holder voting against a plan of reorganization
must receive at least as much as he would have if the debtor were liquidated.

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.

Coinsurance effect

Refers to the fact that the merger of two firms decreases the probability of default on
either firm's debt.

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.

Comparative credit analysis

A method of analysis in which a firm is compared to others that have a desired
target debt rating in order to infer an appropriate financial ratio target.

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.

Conditional sales contracts

Similar to equipment trust certificates except that the lender is either the
equipment manufacturer or a bank or finance company to whom the manufacturer has sold the conditional
sales contract.

Consumer credit

credit granted by a firm to consumers for the purchase of goods or services. Also called
retail credit.

Conversion premium

The percentage by which the conversion price in a convertible security exceeds the
prevailing common stock price at the time the convertible security is issued.

Convertible exchangeable preferred stock

Convertible preferred stock that may be exchanged, at the
issuer's option, into convertible bonds that have the same conversion features as the convertible preferred
stock.

Convertible preferred stock

preferred stock that can be converted into common stock at the option of the holder.

Credit

Money loaned.

Credit analysis

The process of analyzing information on companies and bond issues in order to estimate the
ability of the issuer to live up to its future contractual obligations. Related: default risk

Credit enhancement

Purchase of the financial guarantee of a large insurance company to raise funds.

Credit period

The length of time for which the customer is granted credit.

Credit risk

The risk that an issuer of debt securities or a borrower may default on his obligations, or that the
payment may not be made on a negotiable instrument. Related: Default risk

Credit scoring

A statistical technique wherein several financial characteristics are combined to form a single
score to represent a customer's creditworthiness.

Credit spread

Related:Quality spread

Crediting rate

The interest rate offered on an investment type insurance policy.

Creditor

Lender of money.

Cumulative preferred stock

preferred stock whose dividends accrue, should the issuer not make timely
dividend payments. Related: non-cumulative preferred stock.

Default premium

A differential in promised yield that compensates the investor for the risk inherent in
purchasing a corporate bond that entails some risk of default.

Demand line of credit

A bank line of credit that enables a customer to borrow on a daily or on-demand basis.

Depreciate

To allocate the purchase cost of an asset over its life.

Depreciation

A non-cash expense that provides a source of free cash flow. Amount allocated during the
period to amortize the cost of acquiring Long term assets over the useful life of the assets.

Depreciation tax shield

The value of the tax write-off on depreciation of plant and equipment.

Double-declining-balance depreciation

Method of accelerated depreciation.

Effective spread

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

Eurocredits

Intermediate-term loans of Eurocurrencies made by banking syndicates to corporate and
government borrowers.

Evergreen credit

Revolving credit without maturity.

Federal credit agencies

Agencies of the federal government set up to supply credit to various classes of
institutions and individuals, e.g. S&Ls, small business firms, students, farmers, and exporters.

Federal Deposit Insurance Corporation (FDIC)

A federal institution that insures bank deposits.

FHA prepayment experience

The percentage of loans in a pool of mortgages outstanding at the origination
anniversary, based on annual statistical historic survival rates for FHA-insured mortgages.

Financial press

That portion of the media devoted to reporting financial news.

Five Cs of credit

Five characteristics that are used to form a judgement about a customer's creditworthiness:
character, capacity, capital, collateral, and conditions.

Floating-rate preferred

preferred stock paying dividends that vary with short-term interest rates.

Foreign tax credit

Home country credit against domestic income tax for foreign taxes paid on foreign
derived earnings.

Forward premium

A currency trades at a forward premium when its forward price is higher than its spot price.

Full faith-and-credit obligations

The security pledges for larger municipal bond issuers, such as states and
large cities which have diverse funding sources.

Gross spread

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

Guaranteed insurance contract

A contract promising a stated nominal interest rate over some specific time
period, usually several years.

Horizontal spread

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

Insurance principle

The law of averages. The average outcome for many independent trials of an experiment
will approach the expected value of the experiment.

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 tax credit

Proportion of new capital investment that can be used to reduce a company's tax bill
(abolished in 1986).

Involuntary liquidation preference

A premium that must be paid to preferred or preference stockholders if
the issuer of the stock is forced into involuntary liquidation.

Lag response of prepayments

There is typically a lag of about three months between the time the weighted
average coupon of an MBS pool has crossed the threshold for refinancing and an acceleration in prepayment
speed is observed.

Letter of credit (L/C)

A form of guarantee of payment issued by a bank used to guarantee the payment of
interest and repayment of principal on bond issues.

Line of credit

An informal arrangement between a bank and a customer establishing a maximum loan
balance that the bank will permit the borrower to maintain.

Liquidity preference hypothesis

The argument that greater liquidity is valuable, all else equal. Also, the
theory that the forward rate exceeds expected future interest rates.

Liquidity premium

Forward rate minus expected future short-term interest rate.

Line of credit

An informal arrangement between a bank and a customer establishing a maximum loan
balance that the bank will permit the borrower to maintain.

Market segmentation theory or preferred habitat theory

A biased expectations theory that asserts that the
shape of the yield curve is determined by the supply of and demand for securities within each maturity sector.

Maturity spread

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

Monthly income preferred security (MIP)

preferred stock issued by a subsidiary located in a tax haven.
The subsidiary relends the money to the parent.

Net adjusted present value

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

Net present value (NPV)

The present value of the expected future cash flows minus the cost.

Net present value of growth opportunities

A model valuing a firm in which net present value of new
investment opportunities is explicitly examined.

Net present value of future investments

The present value of the total sum of NPVs expected to result from
all of the firm's future investments.

Net present value rule

An investment is worth making if it has a positive NPV. Projects with negative NPVs
should be rejected.

Non-cumulative preferred stock

preferred stock whose holders must forgo dividend payments when the
company misses a dividend payment.
Related: Cumulative preferred stock

Option premium

The option price.

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.

Portfolio insurance

A strategy using a leveraged portfolio in the underlying stock to create a synthetic put
option. The strategy's goal is to ensure that the value of the portfolio does not fall below a certain level.

Preauthorized checks (PACs)

hecks that are authorized by the payer in advance and are written either by
the payee or by the payee's bank and then deposited in the payee's bank account.

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.

Precautionary demand (for money)

The need to meet unexpected or extraordinary contingencies with a
buffer stock of cash.

Precautionary motive

A desire to hold cash in order to be able to deal effectively with unexpected events
that require cash outlay.

Preemptive right

Common stockholder's right to anything of value distributed by the company.

Preferred equity redemption stock (PERC)

preferred stock that converts automatically into equity at a
stated date. A limit is placed on the value of the shares the investor receives.

Preference stock

A security that ranks junior to preferred stock but senior to common stock in the right to
receive payments from the firm; essentially junior preferred stock.

Preferred habitat theory

A biased expectations theory that believes the term structure reflects the
expectation of the future path of interest rates as well as risk premium. However, the theory rejects the
assertion that the risk premium must rise uniformly with maturity. Instead, to the extent that the demand for
and supply of funds does not match for a given maturity range, some participants will shift to maturities
showing the opposite imbalances. As long as such investors are compensated by an appropriate risk premium
whose magnitude will reflect the extent of aversion to either price or reinvestment risk.

Preferred shares

preferred shares give investors a fixed dividend from the company's earnings. And more
importantly: preferred shareholders get paid before common shareholders. See: preferred stock.

Preferred stock

A security that shows ownership in a corporation and gives the holder a claim, prior to the
claim of common stockholders, on earnings and also generally on assets in the event of liquidation. Most
preferred stock pays a fixed dividend that is paid prior to the common stock dividend, stated in a dollar
amount or as a percentage of par value. This stock does not usually carry voting rights. The stock shares
characteristics of both common stock and debt.

Preferred stock agreement

A contract for preferred stock.

Preliminary prospectus

A preliminary version of a prospectus.

Premium

1) Amount paid for a bond above the par value.
2) The price of an option contract; also, in futures
trading, the amount the futures price exceeds the price of the spot commodity. Related: inverted market premium payback period. Also called break-even time, the time it takes to recover the premium per share of a
convertible security.

Premium bond

A bond that is selling for more than its par value.

Prepackaged bankruptcy

A bankruptcy in which a debtor and its creditors pre-negotiate a plan or
reorganization and then file it along with the bankruptcy petition.

Prepayment speed

Also called speed, the estimated rate at which mortgagors pay off their loans ahead of
schedule, critical in assessing the value of mortgage pass-through securities.

Prepayments

Payments made in excess of scheduled mortgage principal repayments.

Prerefunded bond

Refunded bond.

Present value

The amount of cash today that is equivalent in value to a payment, or to a stream of payments,
to be received in the future.

Present value factor

Factor used to calculate an estimate of the present value of an amount to be received in
a future period.

Present value of growth opportunities (NPV)

Net present value of investments the firm is expected to make
in the future.

Presold issue An issue

that is sold out before the coupon announcement.

Pre-trade benchmarks

Prices occurring before or at the decision to trade.

Price compression

The limitation of the price appreciation potential for a callable bond in a declining interest
rate environment, based on the expectation that the bond will be redeemed at the call price.

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 representative

A person registered with the CFTC who is employed by, and soliciting business
for, a commission house or futures commission merchant.

Relative yield spread

The ratio of the yield spread to the yield level.

Related to : financial, finance, business, accounting, payroll, inventory, investment, money, inventory control, stock trading, financial advisor, tax advisor, credit.