Campbell R. Harvey's Hypertextual Finance Glossary

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P: Fifth letter of NASDAQ stock symbol specifying it is the company's first class of preferred shares.
P.A.C.: See: Preauthorized checks
P.A.D.: See: Preauthorized electronic debits
P.B.G.C.: See: Pension Benefit Guaranty Corporation
P.E.F.C.O.: See: Private export funding corporation
P.E.G. Ratio: See: Prospective Earnings Growth Ratio
P.E.R.C.: See: Preferred equity redemtion stock
P.H.L.X.: See: Philadelphia Stock Exchange
P.I.B.O.R.: See: Paris Interbank Offer Rate
P.I.K.: See: Payment in kind bond
P.L.C.: See: Project loan certificate
P.N.: See: Project Notes
P.O.: See: Principal Only
P.V.B.P.: See: Price value of a basis point
P&L: Profit and loss statement for a trader.
P&S: Purchase and sale statement. A statement provided by the broker showing change in the customer's net ledger balance after the offset of a previously established position(s).
P/E: See: Price/Earnings ratio.
P/E effect: That portfolios with low P/E stocks have exhibited higher average risk-adjusted returns than high P/E stocks. Related: value manager.
P/E ratio: Assume XYZ Co. sells for $25.50 per share and has earned $2.55 per share this year;; $25. 50 = 10 times $2. 55; XYZ stock sells for 10 times earnings. P/E = Current stock price divided by trailing annual earnings per share or expected annual earnings per share.
PSA: A prepayment model based on an assumed rate of prepayment each month of the then unpaid principal balance of a pool of mortgages. PSA is used primarily to derive an implied prepayment speed of new production loans, a 100% PSA assumes a prepayment rate of 2% per month in the first month following the date of issue, increasing at 2% per month thereafter until the 30^th month. Thereafter, 100% PSA is the same as 6% CPR.
Pacific Stock Exchange: Used for listed equity securities. Regional exchange located in Los Angeles and San Francisco; only U.S. listed exchange open between 4:00 and 4:30.
Pac-Man strategy: Takeover defense strategy in which the prospective acquiree retaliates against the acquirer's tender offer by launching its own tender offer for the other firm.
Paid in capital: Capital received from investors in exchange for stock, but not stock from capital generated from earnings or donated. This account includes capital stock and contributions of stockholders credited to accounts other than capital stock. It would also include surplus resulting from recapitalization.
Paid in surplus: See: Paid in capital
Par: Equal to the nominal or face value of a security. A bond selling at "par," for instance, is worth an amount equivalent to its original issue value or its value upon redemption at maturity -- typically $1000/bond. See: discount, premium.
Paired off: Used for listed equity securities. Matched buy and sell market orders, usually pertaining to the pre-opening market picture in a stock, or M.O.C. orders (especially relating to futures/options expirations).
Pairoff: A buy-back to offset and effectively liquidate a prior sale of securities.
Paper: Money market instruments, commercial paper and other.
Paper gain (loss): Unrealized capital gain (loss) on securities held in a portfolio, based on a comparison of current market price to original cost.
Parallel loan: A process whereby two companies in different countries borrow each other's currency for a specific period of time, and repay the other's currency at an agreed maturity for the purpose of reducing foreign exchange risk. Also referred to as back-to-back loans.
Parallel shift in the yield curve: A shift in the yield curve in which the change in the yield on all maturities is the same number of basis points. In other words, if the 3 month T-bill increases 100 basis points (one percent), then the 6 month, 1 year, 5 year, 10 year, 20 year, and 30 year rates increase by 100 basis points as well. Related: Non-parallel shift in the yield curve.
Parameter: A representation that characterizes a part of a model (e.g. a growth rate), the value of which is determined outside of the model. See: exogenous variable.
Parity: For convertibles, level at which a convertible security's market price equals the aggregate value of the underlying common stock; value/worth of the convertible bond considered upon only as an equity instrument. (conversion ratio x common price.) See: conversion value. For international parity, US$ price of a foreign stock's last sale in an overseas market. (local currency stock price x forex rate x A.D.R. ratio). For listed parity, condition whereby no party has floor priority, and matching thus occurs. For options parity, dollar amount by which an option is in-the-money. See: intrinsic value.
Parity value: Related: conversion value
Parking violation: Often used in risk arbitrage. Illegal holding of stock by a third party, or the financing of such a stock, in which the third party's sole reason for holding such stock is to conceal ownership/control of a raider, thus sidestepping the Williams Act requirements of 5% holding limits. See: Rule 13d.
Partial: Used in the context of general equities. Trade whose size is only part of the total customer indication/order, usually done to avoid a compromise in price and also to get the customer started versus losing his total, larger, inquiry/order to a competitor.
"Participate but do not initiate": Used for listed equity securities. "Participate in the side of the market indicated by the order, but do not initiate the interest that causes the trade to take place." This kind of order can cause one to "miss stock" because he is at the mercy of the player who does initiate the trade. See: market order go along, percentage order.
Participating buyer/seller: Used for listed equity securities. (1)Customer willing to buy/sell in-line with market. (2)Buyer/seller who goes along with another buyer/seller in a percentage order.
Participating fees: The portion of total fees in a syndicated credit that go to the participating banks.
Participating GIC: A guaranteed investment contract where the policyholder is not guaranteed a crediting rate, but instead receives a return based on the actual experience of the portfolio managed by the life company.
Participation certificates: Used in the context of general equities. Certificate representing an interest in a pool of funds or in other instruments, such as foreign securities, that allow participation in the rise or fall of a security or group of securities.
Partner: Business associate who shares equity in a firm.
Partnership: Shared ownership among two or more individuals, some of whom may, but do not necessarily, have limited liability. See: general partnership, limited partnership, and master limited partnership.
Par value: Also called the maturity value or face value, the amount that the issuer agrees to pay at the maturity date.
Passive investment strategy: See: passive management.
Passive investment management: Buying a well-diversified portfolio to represent a broad-based market index without attempting to search out mispriced securities.
Passive portfolio: A market index portfolio.
Passive portfolio strategy: A strategy that involves minimal expectational input, and instead relies on diversification to match the performance of some market index. A passive strategy assumes that the marketplace will reflect all available information in the price paid for securities, and therefore, does not attempt to find mispriced securities. Related: active portfolio strategy
Pass-through coupon rate: The interest rate paid on a securitized pool of assets, which is less than the rate paid on the underlying loans by an amount equal to the servicing and guaranteeing fees.
Pass-through rate: The net interest rate passed through to investors after deducting servicing, management, and guarantee fees from the gross mortgage coupon.
Pass-through securities: A pool of fixed-income securities backed by a package of assets (i.e. mortgages) where the holder receives the principal and interest payments. Related: mortgage pass-through security
Path dependent option: An option whose value depends on the sequence of prices of the underlying asset rather than just the final price of the asset.
Payables: Related: Accounts payable.
Payable through drafts: A method of making payment that is used to maintain control over payments made on behalf of the firm by personnel in noncentral locations. The payer's bank delivers the payable through draft to the payer, which must approve it and return it to the bank before payment can be received.
Payback: The length of time it takes to recover the initial cost of a project, without regard to the time value of money.
Paydown: In a Treasury refunding, the amount by which the par value of the securities maturing exceeds that of those sold. Used in the context of general equities. To pay a lesser price in an accumulation of stock. Antithesis of pay up.
Payment date: The date on which each shareholder of record will be sent a check for the declared dividend.
Payment float: Company-written checks that have not yet cleared.
Payment-In-Kind (P.I.K.) 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.
Payments netting: Reducing fund transfers between affiliates to only a netted amount. Netting can be done on a bilateral basis (between pairs of affiliates), or on a multi-lateral basis (taking all affiliates together).
Payments pattern: Describes the lagged collection pattern of receivables, for instance the probability that a 72-day-old account will still be unpaid when it is 73-days-old.
Payoff diagram: In option pricing, a graph of the value of the option position at expiration as a function of the underlying asset price.
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.
Pay-up: The loss of cash resulting from a swap into higher price bonds or the need/willingness of a bank or other borrower to pay a higher rate of interest to get funds. Used in the context of general equities. (1)Situation when an investor who wants to buy a stock at a particular price hesitates and the stock begins to rise; instead of letting the stock go, he "pays up" to buy the shares at the higher prevailing price. 2) Buy shares in a high quality company at what is felt to be a high, but worthy, price due to its quality.
P-coast: Used for listed equity securities. See: Pacific Stock Exchange.
Peak: The transition from the end of an economic expansion to the start of a contraction.
Pecking-order view (of capital structure): The argument that external financing transaction costs, especially those associated with the problem of adverse selection, create a dynamic environment in which firms have a preference, or pecking-order of preferred sources of financing, when all else is equal. Internally generated funds are the most preferred, followed by new debt, debt-equity hybrids, and finally, new equity at the least preferred source.
Penny stock: Used in the context of general equities. Stock that typically sells for less than $1 a share, although it may rise to as much as $10/share after the initial public offering, usually because of heavy promotion. All are traded O.T.C., many of them in the local markets of Denver, Vancouver, or Salt Lake City.
Pension Benefit Guaranty Corporation (P.B.G.C.): A federal agency that insures the vested benefits of pension plan participants (established in 1974 by the ERISA legislation).
Pension plan: A fund that is established for the payment of retirement benefits.
Pension sponsors: Organizations that have established a pension plan.
Percentage order: Used for listed equity securities. Market limited price order to buy/sell a specified percentage (usually 50%) of shares traded (sometimes after a fixed number of shares of the stock have already traded). See: participating buyer/seller, "participate but do not initiate."
Percentage premium: Mainly applies to convertible securities. Premium over parity of a convertible bond divided by parity.
Percent to double: Percentage that the stock price has to rise (fall) to double the price of the call (put).
Perfect capital market: A market in which there are never any arbitrage opportunities.
Perfect competition: An idealized market environment in which every market participant is too small to affect the market price by acting on its own.
Perfected first lien: A first lien that is duly recorded with the cognizant governmental body so that the lender will be able to act on it should the borrower default.
Perfect hedge: A financial result in which the profit and loss from the underlying asset and the hedge position are equal.
Perfectly competitive financial markets: Markets in which no trader has the power to change the price of goods or services. Perfect capital markets are characterized by the following conditions: 1)trading is costless, and access to the financial markets is free, 2)information about borrowing and lending opportunities is freely available, 3 there are many traders, and no single trader can have a significant impact on market prices.
Perfect market view (of capital structure): Analysis of a firm's capital structure decision, which shows the irrelevance of capital structure in a perfect capital market.
Perfect market view (of dividend policy): Analysis of a decision on dividend policy, in a perfect capital market environment, that shows the irrelevance of dividend policy in a perfect capital market.
Performance attribution analysis: The decomposition of a money manager's performance results to explain the reasons why those results were achieved. This analysis seeks to answer the following questions: (1) What were the major sources of added value? (2) Was short-term factor timing statistically significant? (3) Was market timing statistically significant? And (4), Was security selection statistically significant?
Performance evaluation: The evaluation of a manager's performance which involves, first, determining whether the money manager added value by outperforming the established benchmark (performance measurement) and, second, determining how the money manager achieved the calculated return (performance attribution analysis).
Performance measurement: The calculation of the return realized by a money manager over some time interval.
Performance shares: Shares of stock given to managers on the basis of performance as measured by earnings per share and similar criteria. A control device used by shareholders to tie management to the self-interest of shareholders.
Periodic rate: The monthly effective interest rate. For example, the periodic rate on a credit card with an 18% annual percentage rate is 1.5% per month.
Perpetual warrants: Warrants that have no expiration date.
Perpetuity: A constant stream of identical cash flows without end, such as a British consol.
Perquisites: Personal benefits, including direct benefits, such as the use of a firm car or expense account for personal business, and indirect benefits, such as up-to-date office décor.
Personal tax view (of capital structure): The argument that the difference in personal tax rates between income from debt and income from equity eliminates the disadvantage from the double taxation (corporate and personal) of income from equity.
Personal trust: An interest in an asset held by a trustee for the benefit of another person.
Philadelphia Stock Exchange (P.H.L.X.): A securities exchange where American and European foreign currency options on spot exchange rates are traded.
Phillips Curve: A graph that supposedly shows the relationship between inflation and unemployment. It is conjectured that there is a simple tradeoff between inflation and unemployment (high inflation and low unemployment and low inflation and high unemployement). Obviously, the relation between these important macroeconomic variables is more complicated than this simple graph would suggest. Named after A. W. Phillips. For a modern treatment, see work of Robert Lucas.
Phone switching: In mutual funds, the ability to transfer shares between funds in the same family by telephone request. There may be a charge associated with these transfers. Phone switching is also possible among different fund families if the funds are held in street name by a participating broker/dealer.
Paris Interbank Offer Rate (P.I.B.O.R.): The deposit rate on interbank transactions in the Eurocurrency market quoted in Paris.
Pickup: The gain in yield that occurs when a block of bonds is swapped for another block of higher-coupon bonds.
Picture: The bid and asked prices quoted by a broker for a given security. Used for listed equity securities. Bid and ask prices and quantity information from a specialist or from a dealer regarding a particular security (i.e., "IBM's 1/4 to 1/2, 5m by 10m").
Piece: Mainly applies to convertible securities. Increment of bonds that trade in portions of $1,000 minimum. Not all bonds can be traded in "pieces," and the increments can vary.
Pie model of capital structure: A model of the debt/equity ratio of the firms, graphically depicted in slices of a pie that represent the value of the firm in the captial markets.
Piggyback Registration: A situation when a securities underwriter allows existing holdings of shares in a corporation to be sold in combination with an offering of new public shares.
Pink sheets: Refers to over-the-counter trading. Daily publication of the national quotation bureau that details the bid and ask prices of thousands of O.T.C. stocks, as well as market-makers who trade each stock.
Pip: Used for listed equity securities. Smallest unit of a currency (i.e., cents, 1/100 yen, pfenig, shilling).
Pit: A specific area of the trading floor that is designed for the trading of commodities, individual futures, or option contracts.
Pit committee: A committee of the exchange that determines the daily settlement price of futures contracts.
Pivot: Price level established as being significant by market's failure to penetrate or as being significant when a sudden increase in volume accompanies the move through the price level.
Placement: A bank depositing Eurodollars with (selling Eurodollars to) another bank is often said to be making a placement.
Plain vanilla: A term that refers to a relatively simple derivative financial instrument, usually a swap or other derivative that is issued with standard features.
Plan for reorganization: A plan for reorganizing a firm during the Chapter 11 bankruptcy process.
Planned amortization class (P.A.C.): (1) One class of C.M.O. that carries the most stable cash flows and the lowest prepayment risk of any class of C.M.O. Because of a stable cash flow, it is considered the least risky C.M.O. (2) A C.M.O. bond class that stipulates cash-flow contributions to a sinking fund. With the P.A.C., principal payments are directed to the sinking fund on a priority basis in accordance with a predetermined payment schedule, with prior claim to the cash flows before other C.M.O. classes. Similarly, cash flows received by the trust in excess of the sinking fund requirement are also allocated to other bond classes. The prepayment experience of the P.A.C. is therefore very stable over a wide range of prepayment experience.
Planned capital expenditure program: Capital expenditure program as outlined in the corporate financial plan.
Planned financing program: Program of short-term and long-term financing as outlined in the corporate financial plan.
Plan sponsors: The entities that establish pension plans, including private business entities acting for their employees; state and local entities operating on behalf of their employees; unions acting on behalf of their members; and individuals representing themselves.
Planning horizon: The length of time a model projects into the future.
Player: Used in the context of general equities. Customer or trader who is actively involved in a particular stock or the market in general.
Plowback rate: Related: retention rate.
Plug: A variable that handles financial slack in the financial plan.
Plus: Dealers in government bonds normally give price quotes in 32nds. To quote a bid or offer in 64ths, they use pluses; a dealer who bids 4+ is bidding the handle plus 4/32 + 1/64, which equals the handle plus 9/64.
Plus a match: Used for listed equity securities. Floor indication that someone is on the floor with equal priority standing who wants to buy/sell at least the same number of shares at the same price as one's order. Outside. See: matched orders. Compare to ahead.
Plus tick: Used in the context of general equities. Trade occurring at a price higher than the previous sale. Uptick. Antithesis of minus tick. See: short sale.
Plus tick seller: Used for listed equity securities. A short seller (referring to the regulation requiring a plus tick to short).
Point: The smallest unit of price change quoted or, one one-hundredth of a percent. Related: minimum price fluctuation and tick.
Point and figure chart: A price-only chart that takes into account only whole integer changes in price, i.e., a 2-point change. Point and figure charting disregards the element of time and is solely used to record changes in price.
Poison pill: Anti-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.
Policy asset allocation: A long-term asset allocation method, in which the investor seeks to assess an appropriate long-term "normal" asset mix that represents an ideal blend of controlled risk and enhanced return.
Political risk: Possibility of the expropriation of assets, changes in tax policy, restrictions on the exchange of foreign currency, or other changes in the business climate of a country.
Pool factor: The outstanding principal balance divided by the original principal balance with the result expressed as a decimal. Pool factors are published monthly by the Bond Buyer newspaper for Ginnie Mae, Fannie Mae, and Freddie Mac(Federal Home Loan Mortgage Corporation) M.B.S.s.
Pooling of interests: An accounting method for reporting acquisitions accomplished through the use of equity. The combined assets of the merged entity are consolidated using book value, as opposed to the purchase method, which uses market value. The merging entities' financial results are combined as though the two entities have always been a single entity.
Porcupine provision: Often used in risk arbitrage. See: Shark repellent.
Portfolio: A collection of investments, real and/or financial.
Portfolio beta: Used in the context of general equities. The beta of the portfolio is the weighted sum of the individual asset betas. The weights are simply the investment weights in the portfolio. E.g. if 50% of money in stock A with a beta of 2.00 and 50% of money in stock B with a beta of 1.00; the portfolio beta is 1.50. Relative volatility of an individual securities portfolio, taken as a whole, as measured by the individual stock betas of the securities making it up. A beta of 1.05 relative to the S&P 500 implies that if the S&P's excess return increases by 10% the portfolio is expected to increase by 10.5%.
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.
Portfolio internal rate of return: The rate of return computed by first determining the cash flows for all the bonds in the portfolio and then finding the interest rate that will make the present value of the cash flows equal to the market value of the portfolio.
Portfolio level: Used in the context of general equities. Indication not yet at the institutional trading desk but being considered by the portfolio manager. Less certainty exists because the institutional trading desk itself has not received a firm order, only the manager's interest. Show me type customer whose attitude is one of pickiness on price, either due to his own feeling on the stock or constraints imposed upon him as a fiduciary for a portfolio of stocks (and thus his need to examine the portfolio goals and restraints before transacting).
Portfolio management: Related: Investment management
Portfolio manager: Used in the context of general equities. Professional responsible for the securities portfolio of an individual or institutional investor, such as a mutual fund, pension fund, profit-sharing plan, bank trust department, or insurance company. In return for a fee, the manager has the fiduciary responsibility to manage the assets prudently and choose which asset types are most appropriate over time. Related: Investment manager
Portfolio R²: Used in the context of general equities. Number between 0 and 1 that measures the strength of correlation of movement between the portfolio/stock and the index. Indeed, the R² is the square of the correlation. For hedging purposes, the higher the R² the better.
Portfolio opportunity set: The expected return/standard deviation pairs of all portfolios that can be constructed from a given set of assets.
Portfolio separation theorem: An investor's choice of a risky investment portfolio is separate from his attitude towards risk. Related: Fisher's separation theorem.
Portfolio restructuring: Applies to derivative products. Recompostition of a portfolio's asset mix by selling off undesired asset types (equities, debt, or cash) or specific securities within that class, while simultaneously buying desired types or securities. Often a firm is asked to bid on an old portfolio and give an offering of the desired portfolio. See: program trading.
Portfolio turnover rate: For an investment company, an annualized rate found by dividing the lesser of purchases and sales by the average of portfolio assets.
Portfolio variance: Weighted sum of the covariance and variances of the assets in a portfolio.
Position: A market commitment; the number of contracts bought or sold for which no offsetting transaction has been entered into. The buyer of a commodity is said to have a long position and the seller of a commodity is said to have a short position. Related: open contracts
Position limits: Applies to derivative products. Maximum position available in any one future or option contract for a given institution, for "bona fide" futures hedgers, there are no "position limits."
Position self: Used in the context of general equities. Going long or short in anticipation of a stock's movement.
Position sheet: Used in the context of general equities. List of long and short positions for an individual trader or desk, at times accompanied by the trades from the previous trading session that brought these closing positions.
Positive carry: Related: net financing cost
Positive convexity: A property of option-free bonds whereby the price appreciation for a large downward change in interest rates will be greater (in absolute terms) than the price depreciation for the same downward change in interest rates.
Positive covenant (of a bond): A bond covenant that specifies certain actions the firm must take. Also called an affirmative covenant.
Position diagram: Diagram showing the possible payoffs from a derivative investment.
Positive float: See: float.
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.
Post: Particular place on the floor of an exchange where transactions in stocks listed on the exchange occur.
Post-audit: A set of procedures for evaluating a capital budgeting decision after the fact.
Postponement option: The option of postponing a project without eliminating the possibility of undertaking it.
Posttrade benchmarks: Prices after the decision to trade.
Preauthorized checks (P.A.C.s): Checks 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 (P.A.D.s): Debits to its bank account in advance by the payer. The payer's bank sends payment to the payee's bank through the Automated Clearing House (A.C.H.) 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.
Preference: Refers to over-the-counter trading. Select a dealer to handle a trade despite his market not being the best available. Often the "preferenced dealer" will then move his market in-line.
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 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.
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) 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. For convertibles, amount by which the price of a convertible exceeds parity, and is usually expressed as a percentage. If a stock is trading at $45 and the bond convertible at $50 is trading at 105, the premium is $15, or 16.66% (15/90). If the premium is high, the bond trades like any fixed income bond, if low, like a stock. See: gross parity, net parity. For futures, excess of fair value of future over the spot index, which in theory will equal the Treasury bill yield for the period to expiration minus the expected dividend yield until the future's expiration. For options, price of an option in the open market (sometimes refers to the portion of the price that exceeds parity). For straight equity, price higher than that of the last sale or inside market. 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 of reorganization and then file it along with the bankruptcy petition.
Prepayments: Payments made in excess of scheduled mortgage principal repayments.
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.
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. To determine the present value, each future cash flow is multiplied by a present value factor. For example, if the opportunity cost of funds is 10%, the present value of $100 to be received in one year is $100x(1/1 + .10)=$91.
Present value factor: Factor used to calculate an estimate of the present value of an amount to be received in a future period. If the opportunity cost of funds is 10% over next year, the factor is [1/1+.10]
Present value of growth opportunities: Net present value (N.P.V.) 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/book ratio: Compares a stock's market value to the value of total assets less total liabilities (book value). Determined by dividing current stock price by common stockholder equity per share (book value), adjusted for stock splits. Also called Market-to-Book.
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.
Price discovery process: The process of determining the prices of assets in the marketplace through the interactions of buyers and sellers.
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.
Price give: Used in the context of general equities. Willingness of a buyer or seller to negotiate on price, within reason, from the price at the last sale or his indicated level. See: takes price.
Priced out: The market has already incorporated information, such as a low dividend, into the price of a stock.
Price elasticities: The percentage change in the quantity divided by the percentage change in the price. Answers the question: How much will the demand for my product decrease if I raise prices by 10%.
Price impact costs: Related: market impact costs
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Price of admission: Used in the context of general equities. Cost to become a player in a stock due to an inordinately aggressive market being hit or taken (i.e., locking on one side, size or price concessions); trader becomes aggressive in order to break the domination of customer activity by another dealer.
Price momentum: Related: Relative strength
Price persistence: Related: Relative strength
Price risk: The risk that the value of a security (or a portfolio) will decline in the future. Or, a type of mortgage-pipeline risk created in the production segment when loan terms are set for the borrower in advance of terms being set for secondary market sale. If the general level of rates rises during the production cycle, the lender may have to sell his originated loans at a discount.
Prices (of equity): Price of a share of common stock on the date shown. Highs and lows are based on the highest and lowest intraday trading price.
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-specie-flow mechanism: Adjustment mechanism under the classical gold standard whereby disturbances in the price level in one country would be wholly or partly offset by a countervailing flow of specie (gold coins) that would act to equalize prices across countries and automatically bring international payments into balance.
Price takers: Individuals who respond to rates and prices by acting as though they have no influence on them.
Price value of a basis point (P.V.B.P.): Also called the dollar value of a basis point, a measure of the change in the price of a bond if the required yield changes by one basis point.
Price-volume relationship: A relationship espoused by some technical analysts that signals continuing rises and falls in security prices based on accompanying changes in volume traded.
Pricey: Used in the context of general equities. Term used for an unrealistically low bid price or unrealistically high offer price.
Pricing efficiency: Also called external efficiency, a market characteristic where prices at all times fully reflect all available information that is relevant to the valuation of securities.
Primary dealer: Usually refers to the select list of securities firms that are authorized to deal in new issues of government bonds.
Primary distribution: Used in the context of general equities. Sale of a new issue of stocks or bonds, as distinguished from a secondary distribution.
Primary market: The first buyer of a newly issued security buys that security in the primary market. All subsequent trading of those securities is done in the secondary market.
Primary offering: A firm selling some of its own newly issued shares to investors.
Prime rate: The interest rate at which banks lend to their best (prime) customers. Much more often than not, a bank's most creditworthy customers borrow at rates below the prime rate.
Primitive security: An instrument such as a stock or bond for which payments depend only on the financial status of the issuer.
Principal: (1) The total amount of money being borrowed or lent. (2) The party affected by agent decisions in a principal-agent relationship.
Principal-agent relationship: A situation that can be modeled as one person, an agent, who acts on the behalf of another person, the principal.
Principal amount: The face amount of debt; the amount borrowed or lent. Often called principal.
Principal of diversification: Highly diversified portfolios will have negligible unsystematic risk. In other words, unsystematic risks disappear in portfolios, and only systematic risks survive.
Principal only (P.O.): A mortgage-backed security (M.B.S.) in which the holder receives only principal cash flows on the underlying mortgage pool. The principal-only portion of a stripped M.B.S. creates P.O. securities, all of the principal distribution due from the underlying collateral pool is paid to the registered holder of the stripped M.B.S. based on the current face value of the underlying collateral pool.
Print: Used in the context of general equities. (as a verb) Execute a trade, evidenced by its printing on the ticker tape. A trade. (as a noun)
Priority: Used for listed equity securities. System used in an auction market, in which the first bid or offer price is executed before other bid and offer prices, even if subsequent orders are larger. N.Y.S.E. rules stipulate that the bid made first should be executed first, or if two bids came in at once, the bid for the large number of shares receives "priority". The bid that was not executed is then reported back to the broker, who informs the customer that the trade was not completed because there was stock ahead. See: standing.
Private Export Funding Corporation (P.E.F.C.O.): Company that mobilizes private capital for financing the export of big-ticket items by U.S. firms by purchasing at fixed interest rates the medium- to long-term debt obligations of importers of U.S. products.
Private-label pass-throughs: Related: Conventional pass-throughs.
Private placement: The sale of a bond or other security directly to a limited number of investors. Used in the context of general equities. For example, sale of stocks, bonds, or other investments directly to an institutional investor like an insurance company, avoiding the need for S.E.C. registration if the securities are purchased for investment as opposed to resale. Antithesis of public offering.
Private unrequited transfers: Refers to resident immigrant workers' remittances to their country of origin as well as gifts, dowries, inheritances, prizes, charitable contributions, etc.
Privatization: The act of returning state-owned or state-run companies back to the private sector, usually by selling them.
Probability: The relative likelihood of a particular outcome among all possible outcomes.
Probability density function: The probability function for a continuous random variable.
Probability distribution: Also called a probability function, a function that describes all the values that the random variable can take and the probability associated with each.
Probability function: A function that assigns a probability to each and every possible outcome.
Product cycle: The time it takes to bring new and/or improved products to market.
Production payment financing: A method of nonrecourse asset-based financing in which a specified percentage of revenue realized from the sale of the project's output is used to pay debt service.
Production-flow commitment: An agreement by the loan purchaser to allow the monthly loan quota to be delivered in batches.
Product risk: A type of mortgage-pipeline risk that occurs when a lender has an unusual loan in production or inventory but does not have a sale commitment at a prearranged price.
Profile buyer/seller: Used in the context of general equities. Trader trying to get involved in a stock who comes out as a buyer/seller to draw a call from a customer. Hence, the trader has nothing real, or natural.
Profitability index: The present value of the future cash flows divided by the initial investment. Also called the benefit-cost ratio.
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.
Profit: Revenue minus cost. How much you make on a transaction.
Profit margin: Indicator of profitability.; The ratio of earnings available to stockholders to net sales. Determined by dividing net income by revenue for the same 12-month period. Result is shown as a percentage. Also known as net profit margin.
Profit taking: Used in the context of general equities. Action by short-term securities traders to cash-in on gains created by a sharp market rise, which pushes Down prices temporarily but implies an upward market trend. See: ring the [cash] register.
Pro forma capital structure analysis: A method of analyzing the impact of alternative capital structure choices on a firm's credit statistics and reported financial results, especially to determine whether the firm will be able to use projected tax shield benefits fully.
Pro forma financial statements: Financial statements as adjusted to reflect a projected or planned transaction.
Pro forma statement: A financial statement showing the forecast or projected operating results and balance sheet, as in pro forma income statements, balance sheets, and statements of cash flows.
Program trades: Also called basket trades, orders requiring the execution of trades in a large number of different stocks at as near the same time as possible. Related: block trade
Program trading: Trades based on signals from computer programs, usually entered directly from the trader's computer to the market's computer system and executed automatically. Applies to derivative products. This process of electronic execution of trading of a basket of stocks simultaneously, for index arbitrage, portfolio restructuring, or outright buy/sell interests. See super dot.
Progressive tax system: A tax system wherein the average tax rate increases for some increases in income but never decreases with an increase in income.
Progress review: A periodic review of a capital investment project to evaluate its continued economic viability.
Projected benefit obligation (P.B.O.): A measure of a pension plan's liability at the calculation date assuming that the plan is ongoing and will not terminate in the foreseeable future. Related: accumulated benefit obligation.
Projected maturity date: With CMOs, final payment at the end of the estimated cash flow window.
Project financing: A form of asset-based financing in which a firm finances a discrete set of assets on a stand-alone basis.
Project loan certificate (P.L.C.): A primary program of Ginnie Mae for securitizing FHA-insured and co-insured multifamily, hospital, and nursing home loans.
Project loans: Usually FHA-insured and HUD-guaranteed mortgages on multiple-family housing complexes, nursing homes, hospitals, and other development types.
Project loan securities: Securities backed by a variety of FHA-insured loan types - primarily multi-family apartment buildings, hospitals, and nursing homes.
Project notes (P.N.s): Notes that are issued by municipalities to finance federally sponsored programs in urban renewal and housing and are guaranteed by the U.S. Department of Housing and Urban Development.
Promissory note: Written promise to pay.
Property rights: Rights of individuals and companies to own and utilize property as they see fit and to receive the stream of income that their property generates.
Proprietary trading: Used in the context of general equities. Principal trading in which firm seeks capital gains rather than commission dollars.
Prospective Earnings Growth (P.E.G. Ratio): Based on forecasts from sources such as Institutional Broker's Estimate System (I.B.E.S.), First Call, or Zach's. Measure has advantages over typical earnings growth measures which look back in time (historical). Growth is forecast of earnings minus current earnings divided by current earnings.
Prospectus: Formal written document to sell securities that describes the plan for a proposed business enterprise, or the facts concerning an existing one, that an investor needs to make an informed decision. Prospectuses are used by mutual funds to describe the fund objectives, risks and other essential information.
Protect: Used in the context of general equities. Assure the salesman or trader that his interest, buy or sell, will be attended to, given any change in the trading circumstances;
At a price: if the stock trades at a certain price or price range, the trader will show this market to the salesman and thus allow him to participate under these favorable circumstances.
Floor protection: representation of a client on the floor of the exchange -- so that if size were to trade at his price or a better price, he would participate.
Volume (O.T.C.): if a certain amount of volume trades (that parallels the protectee's interest), the trade assures him that he will be able to reasonably participate in the trading activity. The extent of this protection depends on the liquidity, number of market-makers, and other aspects of the stock.
Protectionism: Protecting domestic industry from import competition by means of tariffs, quotas, and other trade barriers.
Protective covenant: A part of the indenture or loan agreement that limits certain actions a company may take during the term of the loan to protect the lender's interests.
Protective put buying strategy: A strategy that involves buying a put option on the underlying security that is held in a portfolio. Related: Hedge option strategies
Provisional call feature: A feature in a convertible issue that allows the issuer to call the issue during the non-call period if the price of the stock reaches a certain level. Mainly applies to convertible securities. right of an issuer to accelerate the first redemption date if the underlying common should trade at or above a certain level for a sustained period. Most typical terms are 150% of conversion price for 20 consecutive days. Note that under these circumstances the security has appreciated, at a minimum, 50% since being issued.
Proxy: Document intended to provide shareholders with information necessary to vote in an informed manner on matters to be brought up at a stockholders' meeting. Includes information on closely held shares. Shareholders can and often do give management their proxy, representing the right and responsibility to vote their shares as specified in the proxy statement.
Proxy contest: A battle for the control of a firm in which the dissident group seeks, from the firm's other shareholders, the right to vote those shareholder's shares in favor of the dissident group's slate of directors. Also called proxy fights.
Proxy fights: Often used in risk arbitrage. Technique used by an acquiring company to attempt to gain control of a takeover target. The acquirer tries to persuade the shareholders of the target company that the present management of the firm should be ousted in favor of a slate of directors favorable to the acquirer, thus enabling the acquiring company to gain control of the company without paying a premium price.
Proxy vote: Vote cast by one person on behalf of another.
Publicly traded assets: Assets that can be traded in a public market, such as the stock market.
Public offering: Used in the context of general equities. Offering to the investment public, after registration requirements of the S.E.C. have been complied with, usually by an investment banker or a syndicate made up of several investment bankers, at a public offering price agreed upon between the issuer and the investment bankers. Antithesis of private placement. See primary distribution and secondary distribution.
Public Securities Administration (PSA): The trade association for primary dealers in U.S. government securities, including M.B.S.s.
Public warehouse: Warehouse operated by an independent warehouse company on its own premises.
Puke: Slang for a trader selling a position, usually a losing position, as in, "When in doubt, puke it out."
Pull: Used in the context of general equities. See: Cancel.
Purchase: To buy, to be long, to have an ownership position.
Purchase accounting: Method of accounting for a merger in which the acquirer is treated as having purchased the assets and assumed liabilities of the acquiree, which are all written up or down to their respective fair market values, the difference between the purchase price and the net assets acquired being attributed to goodwill.
Purchase agreement: As used in connection with project financing, an agreement to purchase a specific amount of project output per period.
Purchase and sale: A method of securities distribution in which the securities firm purchases the securities from the issuer for its own account at a stated price and then resells them, as contrasted with a best-efforts sale.
Purchase fund: Resembles a sinking fund except that money is used only to purchase bonds if they are selling below their par value.
Purchasing power parity: The notion that the ratio between domestic and foreign price levels should equal the equilibrium exchange rate between domestic and foreign currencies.
Purchasing-power risk: Related: inflation risk
Purchase method: Accounting for an acquisition using market value for the consolidation of the two entities' net assets on the balance sheet. Generally, depreciation/amortization will increase for this method (due to the creation of goodwill) compared with pooling and will result in lower net income.
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.
Pure expectations theory: A theory that asserts that the forward rates exclusively represent the expected future rates. In other words, the entire term structure reflects the market's expectations of future short-term rates. For example, an increasing slop ti the term structure implies increasing short-term interest rates. Related: biased expectations theories
Pure index fund: A portfolio that is managed so as to perfectly replicate the performance of the market portfolio.
Pure yield pickup swap: Moving to higher yield bonds.
Put: An option granting the right to sell the underlying futures contract. Opposite of a call.
Put an option: To exercise a put option.
Put away: Used in the context of general equities. Buy interest.
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. If the price is above par, the put is a "premium put."
Put/call parity: Applies to derivative products. Option pricing law that says, given a stock's price, a put and call of the same class must have a static price relationship due to arbitrage opportunities that would reinstate this relationship.
Put-call parity relationship: The relationship between the price of a put and the price of a call on the same underlying security with the same expiration date, which prevents arbitrage opportunities. Holding the stock(s) and buying a put will deliver the exact payoff as buying one call and investing the present value (P.V.) of the exercise price. The call value equals C=S+P-PV(k).
"Put it on ": Used for listed equity securities. "Go to the floor to transact." See: print.
Put on: Used for listed equity securities. Trade, or cross, a block of stock at the designated price and quantity. See: print.
Put option: This security gives investors the right to sell (or put) a fixed number of shares at a fixed price within a given time frame. An investor, for example, might wish to have the right to sell shares of a stock at a certain price by a certain time in order to protect, or hedge, an existing investment.
"Put pants on it ": Used in the context of general equities. "Elaborate on your intentions/inquiry," especially with respect to size, side, and price. See: open up.
Put price: The price at which the asset will be sold if a put option is exercised. Also called the strike or exercise price of a put option.
Put provision: Gives the holder of a floating-rate bond the right to redeem his note at par on the coupon payment date.
Put swaption: A financial tool in which the buyer has the right, or option, to enter into a swap as a floating-rate payer. The writer of the swaption therefore becomes the floating-rate receiver/fixed-rate payer.
Put up: See: Print
Pyramid scheme: An illegal, fraudulent scheme in which a con artist contrives victims to invest by promising an extraordinary return but simply uses newly invested funds to pay off any investors who insist on terminating their investment.

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