Definition of Proprietor

Proprietor

A single person who is the owner of an unincorporated business.

Sole proprietorship

A business owned by a single individual. The sole proprietorship pays no corporate
income tax but has unlimited liability for business debts and obligations.

sole proprietor

Sole owner of a business which has no partners and no shareholders. The proprietor is personally liable for all the firm’s obligations.

Sole Proprietorship

An unincorporated business owned by one person which may or may not have employees.

organizational form

an entity’s legal nature (for example,
sole proprietorship, partnership, corporation)

Seed Capital

Equity and loan capital provided for a new and/or existing business undertaking by persons other than the proprietors.

Venture Capital

Equity and loan capital provided for a new and/or existing business undertaking by persons other than the proprietors.

Obsolescence

The reduction in utility of an inventory item or fixed asset. If it is an
inventory item, then a reserve is created to reduce the value of the inventory by the
estimated amount of obsolescence. If it is a fixed asset, the depreciation method and
timing will be set to approximate the rate and amount of obsolescence.

Obsolete inventory

Parts not used in any current end product.

organizational form

an entity’s legal nature (for example,
sole proprietorship, partnership, corporation)

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.

All equity rate

The discount rate that reflects only the business risks of a project and abstracts from the
effects of financing.

All or none

Requirement that none of an order be executed unless all of it can be executed at the specified price.

All-in cost

Total costs, explicit and implicit.

All-or-none underwriting

An arrangement whereby a security issue is canceled if the underwriter is unable
to re-sell the entire issue.

Asset/liability management

Also called surplus management, the task of managing funds of a financial
institution to accomplish the two goals of a financial institution:
1) to earn an adequate return on funds invested, and
2) to maintain a comfortable surplus of assets beyond liabilities.

Asset allocation decision

The decision regarding how an institution's funds should be distributed among the
major classes of assets in which it may invest.

Asymmetric taxes

A situation wherein participants in a transaction have different net tax rates.

Average tax rate

taxes as a fraction of income; total taxes divided by total taxable income.

Balloon maturity

Any large principal payment due at maturity for a bond or loan with or without a a sinking
fund requirement.

Bargain-purchase-price option

Gives the lessee the option to purchase the asset at a price below fair market
value when the lease expires.

Basic business strategies

Key strategies a firm intends to pursue in carrying out its business plan.

Before-tax profit margin

The ratio of net income before taxes to net sales.

Borrower fallout

In the mortgage pipeline, the risk that prospective borrowers of loans committed to be
closed will elect to withdraw from the contract.

Break-even tax rate

The tax rate at which a party to a prospective transaction is indifferent between entering
into and not entering into the transaction.

Business cycle

Repetitive cycles of economic expansion and recession.

Business failure

A business that has terminated with a loss to creditors.

Business risk

The risk that the cash flow of an issuer will be impaired because of adverse economic
conditions, making it difficult for the issuer to meet its operating expenses.

Call

An option that gives the right to buy the underlying futures contract.

Call an option

To exercise a call option.

Call date

A date before maturity, specified at issuance, when the issuer of a bond may retire part of the bond
for a specified call price.

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.

Call option

An option contract that gives its holder the right (but not the obligation) to purchase a specified
number of shares of the underlying stock at the given strike price, on or before the expiration date of the
contract.
Call premium
Premium in price above the par value of a bond or share of preferred stock that must be paid to
holders to redeem the bond or share of preferred stock before its scheduled maturity date.

Call price

The price, specified at issuance, at which the issuer of a bond may retire part of the bond at a
specified call date.

Call price

The price for which a bond can be repaid before maturity under a call provision.

Call protection

A feature of some callable bonds that establishes an initial period when the bonds may not be
called.

Call provision

An embedded option granting a bond issuer the right to buy back all or part of the issue prior
to maturity.

Call risk

The combination of cash flow uncertainty and reinvestment risk introduced by a call provision.

Call swaption

A swaption in which the buyer has the right to enter into a swap as a fixed-rate payer. The
writer therefore becomes the fixed-rate receiver/floating rate payer.

Callable

A financial security such as a bond with a call option attached to it, i.e., the issuer has the right to
call the security.

Capital allocation

decision allocation of invested funds between risk-free assets versus the risky portfolio.

Cash flow after interest and taxes

Net income plus depreciation.

Chinese wall

Communication barrier between financiers (investment bankers) and traders. This barrier is
erected to prevent the sharing of inside information that bankers are likely to have.

Closing purchase

A transaction in which the purchaser's intention is to reduce or eliminate a short position in
a stock, or in a given series of options.

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.

Contingent pension liability

Under ERISA, the firm is liable to the plan participants for up to 39% of the net
worth of the firm.

Corporate acquisition

The acquisition of one firm by anther firm.

Corporate bonds

Debt obligations issued by corporations.

Corporate charter

A legal document creating a corporation.

Corporate finance

One of the three areas of the discipline of finance. It deals with the operation of the firm
(both the investment decision and the financing decision) from that firm's point of view.

Corporate financial management

The application of financial principals within a corporation to create and
maintain value through decision making and proper resource management.

Corporate financial planning

Financial planning conducted by a firm that encompasses preparation of both
long- and short-term financial plans.

Corporate processing float

The time that elapses between receipt of payment from a customer and the
depositing of the customer's check in the firm's bank account; the time required to process customer
payments.

Corporate tax view

The argument that double (corporate and individual) taxation of equity returns makes
debt a cheaper financing method.

Corporate taxable equivalent

Rate of return required on a par bond to produce the same after-tax yield to
maturity that the premium or discount bond quoted would.

Covered call

A short call option position in which the writer owns the number of shares of the underlying
stock represented by the option contracts. Covered calls generally limit the risk the writer takes because the
stock does not have to be bought at the market price, if the holder of that option decides to exercise it.

Covered call writing strategy

A strategy that involves writing a call option on securities that the investor
owns in his or her portfolio. See covered or hedge option strategies.

Deferred call

A provision that prohibits the company from calling the bond before a certain date. During this
period the bond is said to be call protected.

Deferred taxes

A non-cash expense that provides a source of free cash flow. Amount allocated during the
period to cover tax liabilities that have not yet been paid.

Depreciation tax shield

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

Direct stock-purchase programs

The purchase by investors of securities directly from the issuer.

Double-tax agreement

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

Dynamic asset allocation

An asset allocation strategy in which the asset mix is mechanistically shifted in
response to -changing market conditions, as in a portfolio insurance strategy, for example.

Earnings before interest and taxes (EBIT)

A financial measure defined as revenues less cost of goods sold
and selling, general, and administrative expenses. In other words, operating and non-operating profit before
the deduction of interest and income taxes.

Economic income

Cash flow plus change in present value.

Effective call price

The strike price in an optional redemption provision plus the accrued interest to the
redemption date.

Employee stock ownership plan (ESOP)

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

Equivalent taxable yield

The yield that must be offered on a taxable bond issue to give the same after-tax
yield as a tax-exempt issue.

Fallout risk

A type of mortgage pipeline risk that is generally created when the terms of the loan to be
originated are set at the same time as the sale terms are set. The risk is that either of the two parties, borrower
or investor, fails to close and the loan "falls out" of the pipeline.

Federally related institutions

Arms of the federal government that are exempt from SEC registration and
whose securities are backed by the full faith and credit of the U.S. government (with the exception of the
Tennessee Valley Authority).

Firm

Refers to an order to buy or sell that can be executed without confirmation for some fixed period. Also,
a synonym for company.

Firm commitment underwriting

An undewriting in which an investment banking firm commits to buy the
entire issue and assumes all financial responsibility for any unsold shares.

Firm's net value of debt

Total firm value minus total firm debt.

Firm-specific risk

See:diversifiable risk or unsystematic risk.

First-call

With CMOs, the start of the cash flow cycle for the cash flow window.

Fixed-dollar obligations

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

Fixed-income equivalent

Also called a busted convertible, a convertible security that is trading like a straight
security because the optioned common stock is trading low.

Fixed-income instruments

Assets that pay a fixed-dollar amount, such as bonds and preferred stock.

Fixed-income market

The market for trading bonds and preferred stock.

Foreign tax credit

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

Full faith-and-credit obligations

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

General partnership

A partnership in which all partners are general partners.

Generally Accepted Accounting Principals (GAAP)

A technical accounting term that encompasses the
conventions, rules, and procedures necessary to define accepted accounting practice at a particular time.

Glass-Steagall Act

A 1933 act in which Congress forbade commercial banks to own, underwrite, or deal in
corporate stock and corporate bonds.

Growth phase

A phase of development in which a company experiences rapid earnings growth as it produces
new products and expands market share.

Implied call

The right of the homeowner to prepay, or call, the mortgage at any time.

Imputation tax system

Arrangement by which investors who receive a dividend also receive a tax credit for
corporate taxes that the firm has paid.

Income beneficiary

One who receives income from a trust.

Income bond

A bond on which the payment of interest is contingent on sufficient earnings. These bonds are
commonly used during the reorganization of a failed or failing business.

Income fund

A mutual fund providing for liberal current income from investments.

Income statement (statement of operations)

A statement showing the revenues, expenses, and income (the
difference between revenues and expenses) of a corporation over some period of time.

Income stock

Common stock with a high dividend yield and few profitable investment opportunities.

Installment sale

The sale of an asset in exchange for a specified series of payments (the installments).

Interest equalization tax

tax on foreign investment by residents of the U.S. which was abolished in 1974.

Interest tax shield

The reduction in income taxes that results from the tax-deductibility of interest payments.

Internally efficient market

Operationally efficient market.

Intrinsic value of a firm

The present value of a firm's expected future net cash flows discounted by the
required rate of return.

Investment income

The revenue from a portfolio of invested assets.
Investment management Also called portfolio management and money management, the process of
managing money.

Investment tax credit

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

Investor fallout

In the mortgage pipeline, risk that occurs when the originator commits loan terms to the
borrowers and gets commitments from investors at the time of application, or if both sets of terms are made at closing.

Irrational call option

The implied call imbedded in the MBS. Identified as irrational because the call is
sometimes not exercised when it is in the money (interest rates are below the threshold to refinance).
Sometimes exercised when not in the money (home sold without regard to the relative level of interest rates).

Liability

A financial obligation, or the cash outlay that must be made at a specific time to satisfy the
contractual terms of such an obligation.

Liability funding strategies

Investment strategies that select assets so that cash flows will equal or exceed
the client's obligations.

Liability swap

An interest rate swap used to alter the cash flow characteristics of an institution's liabilities so
as to provide a better match with its assets.

Limited liability

Limitation of possible loss to what has already been invested.

Limited partnership

A partnership that includes one or more partners who have limited liability.

Limited-liability instrument

A security, such as a call option, in which the owner can only lose his initial
investment.

Limited-tax general obligation bond

A general obligation bond that is limited as to revenue sources.

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