Bond ratio

Similar financial terms

Plain vanilla bond
A typical ‘plain vanilla’ bond issued in the United States specifies (a) a fixed date (maturity or expiry date) when the amount borrowed (the principal or face value) is due, and (b) the contractual amount of interest which typically is paid every six months in the US and once a year on the European continent. A plain vanilla bond has a known cash flow pattern.

Bond
A bond is a debt instrument requiring the issuer (also called the debtor or borrower) to repay to the lender/investor the amount borrowed plus interest (coupons) over a specified period of time.

Bond indenture
A contract or agreement between the issuer and the bondholder, which sets forth all the obligations of the issuer.

Short-term bonds
Bonds with a maturity of between one and five years.

Medium-term or intermediate-term bonds
Bonds with a maturity of between five and twelve years.

Long-term bonds
Bonds with a maturity of more than 12 years.

Zero-coupon bonds
The holder of a zero-coupon bond realizes interest by buying the bond at a discount to its principal value. These bonds made their debut in the U.S. bond market in the early 1980s.

Deferred-coupon bonds
Bonds that let the issuer avoid using cash to make interest payments for a specified number of years. There are three types of deferred-coupon structures: (a) deferred-interest bonds, (b) step-up bonds and (c) payment-in-kind bonds.

Call feature on bonds
A call feature grants the issue the right to retire the debt, fully or partially, before the scheduled maturity date. Inclusion of a call feature benefits bond issuers by allowing them to replace an old bond issue with a lower-interest cost issue if interest rates in the market fall.

Put provision on bonds
A put provision grants the bondholder the right to sell the issue back to the issuer at par value on designated dates. Here the advantage to the investor is that if interest rates rise after the issue date, thereby reducing a bond’s price, the investor can force the issuer to redeem the bond at par value.

Convertible bond
An issue giving the bondholder the right to exchange the bond for a specified number of shares of common stock. This feature allows the bondholder to take advantage of favourable movements in the price of the issuer’s common stock.

Exchangeable bond
An issue giving the bondholder the right to exchange the issue for a specified number of common stock shares of a corporation different from the issuer of the bond.

Interest-rate risk on bonds
The price of a typical bond will change in the opposite direction from a change in interest rates. As interest rates rise, the price of a bond will fall; as interest rates fall, the price of a bond will rise. The actual degree of sensitivity of a bond’s price to changes in market interest rates depends on various characteristics of the issue maturity, coupon and special provisions.

Reinvestment risk on bonds
Usually, when the yield of a bond is calculated, you assume that the coupons received before maturity are reinvested. The additional income from such reinvestment is sometimes referred to as interest-on-interest which depends on the prevailing interest-rate levels at the time of reinvestment. Volatility in the reinvestment rate of a given strategy because of changes in market interest rates is called reinvestment risk. This risk is that the interest rate at which interim cash flows can be reinve ...

Call risk on bonds
Many bonds include a call feature that allows the issuer to redeem or “call” all or part of the issue before the maturity date. The issuer usually retains this right in order to have flexibility to refinance the bond in the future if the market interest rate drops below the coupon rate. This implies three risks from the investor: (a) The cash flow pattern becomes uncertain, (b) The investor becomes exposed to reinvestment risk because the issuer will call the bond when interest rates drop, and ( ...

Default risk on bonds
Issuers that potentially run into cash flow problems, simultaneously attaches default risk to their bonds if there is uncertainty whether they can afford to pay coupons and principals. Bonds with default risk trade in the market at a price that is lower than comparable U.S. Treasury securities, which are considered free of default risk. Default risk is gauged by quality ratings assigned by recognised rating companies such as Moody’s Investor Service, Standard & Poor’s Corporation, Morningstar an ...

Junk bonds
Bonds that trade below investment grade set by recognised rating companies such as Moody’s Investor Service (Baa3), Standard & Poor’s Corporation (BBB), Morningstar and Fitch IBCA.

Inflation risk on bonds
If investors purchase a bond on which they can realize a coupon rate of 5% but the rate of inflation is 6%, the purchasing power of the cash flow actually has declined. Inflation risk arises because of the variation in the value of cash flows from a security due to inflation, as measured in terms of purchasing power.

Exchange-rate risk on bonds
A non-domestic-currency nominated bond has unknown domestic currency cash flows. The domestic currency cash flows are dependent on the exchange rate at the time the payments are received. For example, suppose that a German investor purchases a bond whose payments are in British pounds (GBP). If pounds depreciate relative to euros (EUR), fewer euros will be received and vice versa. This risk is also referred to currency risk.

Liquidity risk on bonds
The primary measure of liquidity is the size of the bid-ask spread. Liquidity risk depends on the ease with which an issue can be sold at or near its value. It follows that the wider the dealer spread, the more liquidity risk.

Eurobond
An international bond sold primarily in countries other than the country in whose currency the issue is denominated

Brady bonds
Brady bonds are issued by emerging countries under a debt-reduction plan named after former U.S. Secretary of the Treasury Nicholas Brady. Brady bonds were set up in association with the IMF and World Bank to sponsor the restructuring of outstanding sovereign loans and interest arrears into liquid debt instruments.

Treasury Bond
A long-term debt instrument issued by the government to finance its budget. Treasury Bond coupons are usually paid semi-annually in the US and annually in the UK.

Conventional bonds
The conventional bonds form the largest part of the UK gilt market. 73% of bonds oustanding are in this form. COnventional bonds have a fixed coupon and a bullet (i.e. a fixed) maturity. Current coupons range from 2% to 13.5%. At the moment (2004), the longest outstanding maturity is 2036.

Irredeemable bonds
Bonds with a fixed maturity but not subject to prior redemption; bonds that cannot be called for redemption by the issuer (payer or obligor) before maturity. They should not be confused with perpetual bonds or intermediate bonds. UK Irredeemable (undated) bonds have no final maturity date. They are callable by the government at any time within 3 months. As their coupons range between 2.5% and 4% they are unlikely to be called. War loan, issued by the UK government during the First World War ...

Yankee bonds
Yankee bonds are issued by foreign governments and corporations, are generally dollar denominated, trade in the U.S., and must register with the Security and Exchange Commission. Issuers in the Yankee bond market are predominately highly-rated sovereign, or sovereign guaranteed issuers, although foreign corporations and financial institutions have increased issuance of Yankee bonds over the last decade.

Issuance in the Yankee bond market is dependent on U.S. interest rates, and the valu ...

Matador bonds
Foreign bonds issued in Spain.

Rembrandt bonds
Foreign bonds issued in Netherlands.

Samurai bonds
Foreign bonds issued in Japan.

Bulldog bonds
Foreign bonds issued in the United Kingdom.

Shogun bonds
Shogun bonds consist of foreign-currency bonds issued in Tokyo in currencies other that Japanese yen (JPY).

Yankee ECU bonds
Yankee ECU bonds refers to foreign-currency bonds issued in New York or Chicago in currencies other that US dollar.

Z bond
Also known as an accrual bond or accretion bond; a bond on which interest accretes interest but is not paid currently to the i nvestor but rather is accrued, with accrual added to the principal balance of the Z and becoming payable upon satisfaction of all prior bond classes.

Accrual bond
A bond on which interest accrues, but is not paid to the investor during the time of accrual. The amount of accrued interest is added to the remaining principal of the bond and is paid at maturity.

Variable rated demand bond
Variable rated demand bond (VRDB) is a floating rate bond that can be sold back periodically to the issuer.

U.S. Treasury bond
U.S. government debt with a maturity of more than 10 years.

Term bonds
Often referred to as bullet-maturity bonds or simply bullet bonds, bonds whose principal is payable at maturity.

Sushi bond
A eurobond issued by a Japanese corporation.

Subordinated debenture bond
An unsecured bond that ranks after secured debt, after debenture bonds, and often after some general creditors in its claim on assets and earnings. Related: Debenture bond, mortgage bond, collateral trust bonds.

Stripped bond
Bond that can be subdivided into a series of zero-coupon bonds.

Stratified sampling bond indexing
A method of bond indexing that divides the index into cells, each cell representing a different characteristic, and that buys bonds to match those characteristics.

Step-up bond
A bond that pays a lower coupon rate for an initial period which then increases to a higher coupon rate.

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

Single-payment bond
A bond that will make only one payment of principal and interest.

Short bonds
Bonds with short current maturities.

Series bond
Bond that may be issued in several series under the same indenture.

Serial bonds
Corporate bonds arranged so that specified principal amounts become due on specified dates.

Revenue bond
A bond issued by a municipality to finance either a project or an enterprise where the issuer pledges to the bondholders the revenues generated by the operating projects financed, for instance, hospital revenue bonds and sewer revenue bonds.

Registered bond
A bond whose issuer records ownership and interest payments. Differs from a bearer bond which is traded without record of ownership and whose possession is the only evidence of ownership.

Refunded bond
Also called a prerefunded bond, one that originally may have been issued as a general obligation or revenue bond but that is now secured by an "escrow fund" consisting entirely of direct U.S. government obligations that are sufficient for paying the bondholders.

Put bond
A bond that the holder may choose either to exchange for par value at some date or to extend for a given number of years.

Pure-discount bond
A bond that will make only one payment of principal and interest. Also called a zero-coupon bond or a single-payment bond.

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

Positive covenant (of a bond)
A bond covenant that specifies certain actions the firm must take. Also called an affirmative covenant.

Payment-In-Kind (PIK) bond
A bond that gives the issuer an option (during an initial period) either to make coupon payments in cash or in the form of additional bonds.

Municipal bond
State or local governments offer muni bonds or municipals, as they are called, to pay for special projects such as highways or sewers. The interest that investors receive is exempt from some income taxes.

Mortgage bond
A bond in which the issuer has granted the bondholders a lien against the pledged assets. Collateral trust bonds

Mismatch bond
Floating rate note whose interest rate is reset at more frequent intervals than the rollover period (e.g. a note whose payments are set quarterly on the basis of the one-year interest rate).

Low-coupon bond refunding
Refunding of a low coupon bond with a new, higher coupon bond.

Long bonds
Bonds with a long current maturity. The "long bond" is the 30-year U.S. government bond.

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

Level-coupon bond
Bond with a stream of coupon payments that are the same throughout the life of the bond.

Bearer bond
Bonds that are not registered on the books of the issuer. Such bonds are held in physical form by the owner, who receives interest payments by physically detaching coupons from the bond certificate and delivering them agent.to the paying

Bond agreement
A contract for privately placed debt.

Bond covenant
A contractual provision in a bond indenture. A positive covenant requires certain actions, and a negative covenant limits certain actions.

Bond equivalent yield
Bond yield calculated on an annual percentage rate method. Differs from annual effective yield.

Bond indexing
Designing a portfolio so that its performance will match the performance of some bond index.

Bond points
A conventional unit of measure for bond prices set at $10 and equivalent to 1% of the $100 face value of the bond. A price of 80 means that the bond is selling at 80% of its face, or par value.

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

Bond-equivalent basis
The method used for computing the bond-equivalent yield.

Bond-equivalent yield
The annualized yield to maturity computed by doubling the semiannual yield.

BONDPAR
A system that monitors and evaluates the performance of a fixed-income portfolio , as well as the individual securities held in the portfolio. BONDPAR decomposes the return into those elements beyond the manager's control--such as the interest rate environment and client-imposed duration policy constraints--and those that the management process contributes to, such as interest rate management, sector/quality allocations, and individual bond selection.

Bull-bear bond
Bond whose principal repayment is linked to the price of another security. The bonds are issued in two tranches: in the first tranche repayment increases with the price of the other security, and in the second tranche repayment decreases with the price of the other security.

Collateral trust bonds
A bond in which the issuer (often a holding company) grants investors a lien on stocks, notes, bonds, or other financial asset as security.

Completion bonding
Insurance that a construction contract will be successfully completed.

Conflict between bondholders and stockholders
These two groups may have interests in a corporation that conflict. Sources of conflict include dividends, distortion of investment, and underinvestment. Protective covenants work to resolve these conflicts.

Convertible bonds
Bonds that can be converted into common stock at the option of the holder.

Convertible eurobond
A eurobond that can be converted into another asset, often through exercise of attached warrants.

Corporate bonds
Debt obligations issued by corporations.

Cushion bonds
High-coupon bonds that sell at only at a moderate premium because they are callable at a price below that at which a comparable non-callable bond would sell. Cushion bonds offer considerable downside protection in a falling market.

Blanket fidelity bond
SEC-required insurance coverage that brokerage firms are required to have in order to cover fraudulent trading by employees.

General Obligation Bonds
Securities issued by municipalities. The source of revenue to pay the interest and principal is taxes. These securities are also known as full faith and credit issues because they depend on the municipality's capacity to tax. These issues are often considered to be more stable than Revenue Bonds.

Strip Bonds
The capital portion of a bond from which the coupons have been stripped. The holder of the strip bond is entitled to its par value at maturity, but not the annual interest payments.

Four-firm concentration ratio
The sum of the portions of sales, value added, assets, or employees held by the largest four firms in an industry. A measure of competitiveness according to the structural theory

Hedge ratio
The percentage of the position in an asset that is hedged with derivatives.

Quick ratio
The quick ratio (also known as acid test) is a financial ratio similar to the current ratio, but more stringent. It is defined as: current assets minus stocks, divided by current liabilities. It shows whether a company would be able to pay its debts if its creditors were hammering at the door AND it had no time to sell any of its stock. If the acid test is 1 or higher, a company passes the test.

Common stock ratio
A ratio showing the portion of total capitalization represented by common stock and retained earnings. To calculate, add the dollar value of common stock plus retained earnings and divide by total capitalization; the result is expressed as a percentage

Current ratio
A ratio that tests the strength of a company's working capital. Current assets are divided by current liabilities and the result is expressed as a factor, x to y.

Dept/equity ratio
A ratio showing the percentage of total shareholders' equity represented by long-term dept. This important fundamental test shows the degree of capitalization that is derived from dept rather than from equity.

Dividend payout ratio
A ratio showing the percentage of net profits paid out in dividends on common stock, after reducing net profits by the amount of dividends paid on preferred stock.

Expiration date
The date on which an option expires, after which the option cannot be exercised.

Acid-test ratio
Also called the quick ratio, the ratio of current assets minus inventories, accruals, and prepaid items to current liabilities.

Yield ratio
The quotient of two bond yields.

Working capital ratio
Working capital expressed as a percentage of sales.

Two-fund separation theorem
The theoretical result that all investors will hold a combination of the risk-free asset and the market portfolio.

Total debt to equity ratio
A capitalization ratio comparing current liabilities plus long-term debt to shareholders' equity.

Times-interest-earned ratio
Earnings before interest and tax, divided by interest payments.

Time until expiration
The time remaining until a financial contract expires. Also called time to maturity.

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.

Soft Capital Rationing
Capital rationing that under certain circumstances can be violated or even viewed as made up of targets rather than absolute constraints.

Short-term solvency ratios
Ratios used to judge the adequacy of liquid assets for meeting short-term obligations as they come due, including (a) the current ratio, (b) the acid-test ratio, (c) the inventory turnover ratio, and (d) the accounts receivable turnover ratio.

Shelf registration
A procedure that allows firms to file one registration statement covering several issues of the same security.

Sharpe ratio
A measure of a portfolio's excess return relative to the total variability of the portfolio.

Separation theorem
The value of an investment to an individual is not dependent on consumption preferences. All investors will want to accept or reject the same investment projects by using the NPV rule, regardless of personal preference.

Separation property
The property that portfolio choice can be separated into two independent tasks: (a) determination of the optimal risky portfolio, which is a purely technical problem, and (b) the personal choice of the best mix of the risky portfolio and the risk-free asset.

Reward-to-volatility ratio
Ratio of excess return to portfolio standard deviation.

Reserve ratios
Specified percentages of deposits, established by the Federal Reserve Board, that banks must keep in a non-interest-bearing account at one of the twelve Federal Reserve Banks.

Registration statement
A legal document that is filed with the SEC to register securities for public offering.

Receivables turnover ratio
Total operating revenues divided by average receivables. Used to measure how effectively a firm is managing its accounts receivable.

Rational expectations
The idea that people rationally anticipate the future and respond to what they see ahead.

Rate of return ratios
Ratios that are designed to measure the profitability of the firm in relation to various measures of the funds invested in the firm.

Q ratio
Market value of a firm's assets divided by replacement value of the firm's assets.

Public Securities Administration (PSA)
The trade association for primary dealers in US government securities, including MBSs.

Profitability ratios
Ratios that focus on the profitability of the firm. Profit margins measure performance with relation to sales. Rate of return ratios measure performance relative to some measure of size of the investment.

Private Export Funding Corporation (PEFCO)
Company that mobilizes private capital for financing the export of big-ticket items by US firms by purchasing at fixed interest rates the medium- to long-term debt obligations of importers of US products.

Price/sales ratio
Determined by dividing current stock price by revenue per share (adjusted for stock splits). Revenue per share for the P/S ratio is determined by dividing revenue for past 12 months by number of shares outstanding.

Price/earnings ratio
Shows the "multiple" of earnings at which a stock sells. Determined by dividing current stock price by current earnings per share (adjusted for stock splits). Earnings per share for the P/E ratio is determined by dividing earnings for past 12 months by the number of common shares outstanding. Higher "multiple" means investors have higher expectations for future growth, and have bid up the stock's price.

Possessions corporation
A type of corporation permitted under the U.S. tax code whereby a branch operation in a U.S. possessions can obtain tax benefits as though it were operating as a foreign subsidiary.

Portfolio separation theorem
An investor's choice of a risky investment portfolio is separate from his attitude towards risk.

Pension Benefit Guaranty Corporation (PBGC)
A federal agency that insures the vested benefits of pension plan participants (established in 1974 by the ERISA legislation).

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.

P/E ratio
Assume Deutsche Bank sells for €25.50 per share and has earned €2.55 per share this year; €25.50 = 10 times €2.55. Deutsche Bank stock sells for 10 times earnings. P/E = Current stock price divided by trailing annual earnings per share or expected annual earnings per share.

Operationally efficient market
Also called an internally efficient market, one in which investors can obtain transactions services that reflect the true costs associated with furnishing those services.

Open-market purchase operation
A systematic program of repurchasing shares of stock in market transactions at current market prices, in competition with other prospective investors.

Open-market operation
Purchase or sale of government securities by the monetary authorities to increase or decrease the domestic money supply.

Negative duration
A situation in which the price of the MBS moves in the same direction as interest rates.

Multinational corporation
A firm that operates in more than one country.

Mortgage-Backed Securities Clearing Corporation
A wholly owned subsidiary of the Midwest Stock Exchange that operates a clearing service for the comparison, netting, and margining of agency-guaranteed MBSs transacted for forward delivery.

Mortgage duration
A modification of standard duration to account for the impact on duration of MBSs of changes in prepayment speed resulting from changes in interest rates. Two factors are employed: one that reflects the impact of changes in prepayment speed or price.

Modified duration
The ratio of Macaulay duration to (1 + y), where y = the bond yield. Modified duration is inversely related to the approximate percentage change in price for a given change in yield.

Market value ratios
Ratios that relate the market price of the firm's common stock to selected financial statement items.

Macaulay duration
The weighted-average term to maturity of the cash flows from the bond, where the weights are the present value of the cash flow divided by the price of the bond.

D = [(1 x (C/1+y)) + (2 x (C/1+y^2)) + (3 x ((C + FV)/1+y^3))] / [(C/1+y) + (C/1+y^2) + (C + FV/1+y^3)]

Low price-earnings ratio effect
The tendency of portfolios of stocks with a low price-earnings ratio to outperform portfolios consisting of stocks with a high price-earnings ratio.

Long-term debt to equity ratio
A capitalization ratio comparing long-term debt to shareholders' equity.

Long-term debt ratio
The ratio of long-term debt to total capitalization.

Liquidity ratios
Ratios that measure a firm's ability to meet its short-term financial obligations on time.

Leverage ratios
Measures of the relative contribution of stockholders and creditors, and of the firm's ability to pay financing charges. Value of firm's debt to the total value of the firm.

Incorporation
Incorporation is the process of creating a legal, tax-paying entity. Businesses or companies can be incorporated or unincorporated. If unincorporated, the owner(s) of the business personally take on the assets and liabilities of the business and are personally responsible for all taxes. When incorporating, which is simply a legal registration process, a new, tax-payer is, in essence, created. Incorporating a business is a straightforward process. Lawyers and other agencies usually provide this s ...

Capital rationing
Placing one or more limits on the amount of new investment undertaken by a firm, either by using a higher cost of capital, or by setting a maximum on parts of, and/or the entirety of, the capital budget.

Capitalization ratios
Also called financial leverage ratios, these ratios compare debt to total capitalization and thus reflect the extent to which a corporation is trading on its equity. Capitalization ratios can be interpreted only in the context of the stability of industry and company earnings and cash flow.

Cash flow coverage ratio
The number of times that financial obligations (for interest, principal payments, preferred stock dividends, and rental payments) are covered by earnings before interest, taxes, rental payments, and depreciation.

Cash flow from operations
A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus non-cash expenses that were deducted in calculating net income.

Cash ratio
The proportion of a firm's assets held as cash.

Common stock ratios
Ratios that are designed to measure the relative claims of stockholders to earnings (cash flow per share), and equity (book value per share) of a firm.

Concentration account
A single centralized account into which funds collected at regional locations (lockboxes) are transferred.

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

Conversion ratio
The number of shares of common stock that the security holder will receive from exercising the call option of a convertible security.

Corporation
A legal "person" that is separate and distinct from its owners. A corporation is allowed to own assets, incur liabilities, and sell securities, among other things.

Cost-benefit ratio
The net present value of an investment divided by the investment's initial cost. Also called the profitability index.

Coverage ratios
Ratios used to test the adequacy of cash flows generated through earnings for purposes of meeting debt and lease obligations, including the interest coverage ratio and the fixed charge coverage ratio.

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

Rationality
In game theory, one of the most common assumptions made is that every player/participant is rational. In its mildest form, rationality implies that every player is motivated by maximizing his own payoff. In a stricter sense, it implies that every player always maximizes his utility, thus being able to perfectly calculate the probabilistic result of every action.

BIS ratio
The BIS ratio gives an indication of the solvency of a bank. It gives the ratio between the risk-bearing capital and the risk-weighted assets.

Capital coverage ratio
Available capital divided by required capital.

Remuneration and Nomination Committee
A committee that advises the Supervisory Board in a company on compensation policies and the composition of the Supervisory Board and Executive Board. The committee also advises the Supervisory Board on the compensation packages of the members of the Executive Board and the Supervisory Board.

Generation-skipping trust
A trust in which a principal amount is placed in a trust on the death of person A and is transferred to A's grandchildren when A's children die. However, the income generated from the trust while the children of person A are alive goes to the children of person A.

Controlled Foreign Corporation (CFC)
An offshore company which, because of ownership or voting control of U.S. persons, is treated by the IRS as a U.S. tax reporting entity. IRC 951 and 957 collectively define the CFC as one in which a U.S. person owns 10 percent or more of a foreign corporation or in which 50 percent or more of the total voting stock is owned by U.S. shareholders collectively or 10 percent or more of the voting control is owned by U.S. persons.

The Securities Industry Protection Corporation
Commonly named the SIPC. Provides up to $500,000 insurance protection for your U.S. stock brokerage account.

Duration
A measure of a bond's price sensitivity to changes in interest rates.

Vertical Integration
The acquisition by a company operating in one market, of another company that is complementary to its existing business, perhaps as a supplier or user of product, for example a newspaper publishing company acquiring a paper manufacturer. See Vertical merger.