StockCross, Glossary

Financial Glossary with 6,000 definitions and 15,000 internal links. Understand financial terms, clarify their meanings, explore the internal links and find out how these terms relate to each other.

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

P: Fifth letter of Nasdaq stock symbol specifying issue is the company's first class of preferred shares.
P2P: Business slang, usually used in reference to startups or internet startup,refers to "path to profitability.".
PAC: See: Planned amortization class
PAC: See: Preauthorized checks
PAD: See: Preauthorized electronic debits
PBGC: See: Pension Benefit Guaranty Corporation
PC: See: Participation certificates
PEFCO: See: Private Export Funding Corporation
PEG Ratio: See: Prospective earnings growth ratio
PERC: See: Preferred equity redemption stock
PERLS: Principal Exchange-Rated-Linked Securities.
PHLX: See: Philadelphia Stock Exchange
PIBOR: See: Paris Interbank Offer Rate
PIK: See: Payment-in-kind bond
PLC: See: Project loan certificate
PN: See: Project notes
PO: See: Principal only
PVBP: See: Price value of a basis point
PAC Bond: Stands for Planned Amortization Class bond. A tranche class offered by some CMOs that has a sinking fund schedule and an ability to make principal payments that are not subordinated to other classes.
Pacific Stock Exchange: Used for listed equity securities. Regional exchange located in Los Angeles and San Francisco; only U.S. 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.
Package mortgage: A mortgage on a house and property in the house.
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
Paid up: When all payments that are due have been made.
Paid-up policy: A life insurance policy in which all premiums that are due have been paid.
Painting the tape: Illegal practice by traders who manipulate the market by buying and selling a security to create the illusion of high trading activity and to attract other traders who may push up the price.
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 MOC orders (especially relating to futures/options expirations).
Paired shares: Stock of two companies under the same management that are sold as one unit with one certificate.
Pairoff: A buyback to offset and effectively liquidate a prior sale of securities.
Panic buying or selling: Rapid trading of stocks or bonds in high volume in anticipation of sharply rising or falling prices, usually after unexpected news is released.
Paper: Money market instruments, commercial paper, and other.
Paper dealer: A brokerage firm that buys and sells commercial paper to make a profit.
Paper gain (loss): Unrealized capital gain (loss) on securities held in a portfolio based on a comparison of current market price to original cost.
Par: Equal to the nominal or face value of a security. A bond selling at par is worth an amount equivalent to its original issue value or its value upon redemption at maturity-typically $1000/bond. See: Discount, premium.
Par bond: A bond trading at its face value.
Par value: Also called the maturity value or face value; the amount that an issuer agrees to pay at the maturity date.
Par value of currency: The official exchange rate between two countries' currencies.
Parallel bonds: Fixed income instruments denominated in the respective currencies of the countries where they are placed.
Parallel loan: A process whereby two companies in different countries borrow each other's currency for a specific period of time, and repay the other's currency at an agreed maturity for the purpose of reducing foreign exchange risk. Also referred to as back-to-back loans.
Parallel shift in the yield curve: A shift in economic conditions in which the change in the interest rate on all maturities is the same number of basis points. In other words, if the three month T-bill increases 100 basis points (one %), then the 6-month, 1-year, 5-year, 10-year, 20-year, and 30-year rates all increase by 100 basis points as well. Related: Non-parallel shift in the yield curve.
Parameter: A model is a combination of variables, such as GDP growth, and coefficients which multiply these variables. The coefficients are often estimated from the data. The coefficients are called parameters.
Parent company: A company that controls subsidiaries through its ownership of voting stock, as well as runs its own business.
Paris Bourse: National stock market of France.
Paris Interbank Offer Rate (PIBOR): The deposit rate on interbank transactions in the Eurocurrency market quoted in Paris.
Parity: For convertibles, level at which a convertible security's market price equals the aggregate value of the underlying common stock; value/worth of the convertible bond considered only as an equity instrument (Conversion ratio times common price). See: Conversion value. For international parity, US$ price of a foreign stock's last sale in an overseas market (Local currency stock price times forex rate times ADR 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: Putting money into safe investments such as money market investments while deciding where to invest the money.
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 the stock is to conceal ownership or control of a raider, thus sidestepping the Williams Act requirements of 5% holding limits. See: Rule 13d.
Part B prospectus: See: Statement of Additional Information
Partial: Used in the context of general equities. Trade whose size is only part of the total customer indication/order, usually made to avoid a compromise in price and also to get some business instead of losing the customers inquiry/order to a competitor.
Partial compensation: Incomplete payment for the delivery of goods to one party by buying back a certain amount of product from the same party.
"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 the broker of investor 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 convertible preferred stock: Preferred stock that can be converted into common stock at the option of the holder. In contrast, to the usual preferred stock, the value of the preferred stock is refunded to the holder. That is, one gets conversion plus the value of the stock.
Participating dividend: Dividend received from ownership of participating preferred stock.
Participating fees: The portion of total fees in a syndicated credit that go to the participating banks.
Participating GIC: A guaranteed investment contract whose policyholder is not guaranteed a crediting rate, but instead receives a return based on the actual experience of the portfolio managed by the life insurance company.
Participating life insurance policies: Life insurance that pays dividends to policyholders depending on the company's success as provided by few claims and profitable underwritings and investments.
Participating preferred stock: Preferred stock that provides the holder with a specified dividend plus the right to additional earnings under specified conditions.
Participation certificates (PC): Used in the context of general equities. Investments 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.
Participation loan: A large loan made by a group of lenders, that enables a borrower to obtain financing above the legal lending limit of an individual lender.
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 with respect to obligations of the group. See: General partnership, limited partnership, and master limited partnership.
Partnership agreement: A written agreement among partners detailing the terms and conditions of participation in a business ownership arrangement.
Party in interest: An ERISA-specified individual—such as an administrator, officer, fiduciary, trustee, custodian, or counsel—who is prohibited from making certain transactions involving a retirement plan. A trustee, for example, would be prohibited from using an IRA as collateral for a loan.
Pass the book: The process of transferring responsibility for a brokerage firm's trading account from one office to another around the world in order to benefit from trading 24 hours a day.
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
Passive: Income or loss from business activities in which a person does not materially participate, such as a limited partnership.
Passive Activity Loss (PAL): A loss incurred in participating in passive investing.
Passive bond: A bond without any interest yield.
Passive income: Income (such as investment income) that does not come from active participation in a business. Specified by the U.S. tax code.
Passive Income Generator (PIG): An investment that favors passive income, such as an income-oriented real estate limited partnership.
Passive investing: Putting money into a profitable business opportunity that is deemed passive by the IRS and thus benefits from tax deductions.
Passive investment management: Buying a well diversified portfolio to represent a broad-based market index without attempting to search out mispriced securities.
Passive investment strategy: See: Passive investment management.
Passive management: See: Indexing
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.
Patent: The exclusive right to use documented intellectual property in producing or selling a particular product or using a process for a designated period of time.
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.
Pattern: A technical chart formation used to make market predictions by following the price movements of securities.
Pay-as-you-go basis: A method of paying income tax in which the employer deducts a portion of an employee's monthly salary to remit to the IRS.
Pay-to-play: Attempts by municipal bond underwriting businesses to gain influence with political officials who decide which underwriters are awarded the municipality's business.
Pay-up: The loss of cash resulting from a swap into higher-priced 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) 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 supportable, price due to its quality.
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.
Payable date: The date when dividends or capital gains are paid to shareholders or reinvested in additional shares.
Payables: Related: Accounts payable
Payback: The length of time it takes to recover the initial cost of a project, without regard to the time value of money.
Pay-down: In a Treasury refunding, the amount by which the par value of the securities maturing exceeds that of those sold. In the context of general equities, paying a lower price in an accumulation of stock. Antithesis of pay-up.
Payee: A person receiving payment through any form of money transfer method.
Payer: The person making a payment to a payee.
Paying agent: An agent who makes principal and interest payments to bondholders on behalf of the issuer.
Payment date: The date on which shareholders of record will be sent a check for the declared dividend.
Payment float: Company-written checks that have not yet cleared.
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.
Payments netting: Reducing fund transfers between affiliates to only a netted amount. Netting can occur on a bilateral basis (between pairs of affiliates), or on a multi-lateral basis (taking all affiliates together).
Payments pattern: Describes the collection pattern of receivables. The pattern might describe 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.
Payoff profile: The slope of a line graphed according to the value of an underlying asset on the x-axis and the value of a position taken to hedge against risk exposure on the y-axis. Also used with changes in value. See: Risk profile.
Payout period: The time period during which withdrawals from a retirement account or annuity are paid.
Payout ratio: Generally, the proportion of earnings paid out to the common stockholders as cash dividends. Morespecifically, the firm's cash dividend divided by the firm's earnings in the same reporting period.
P-coast: Refers to west coast listed equity securities. See: Pacific Stock Exchange.
P/E: See: Price/earnings ratio
P/E effect: That portfolios with low P/E stocks exhibit higher average risk-adjusted returns than those with high P/E stocks. Related: Value manager.
P/E ratio: Current stock price divided by trailing annual earnings per share or expected annual earnings per share. 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 ten times earnings.
Peak: The high point at the end of an economic expansion until the start of a contraction.
Pecking-order view (of capital structure): The argument that external financing transactions 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, and debt-equity hybrids. Finally, new equity is at the least preferred source.
Pegged exchange rate: Exchange rate whose value is pegged to another currency's value or to a unit of account.
Pegging: Making transactions in a security, currency, or commodity in order to stabilize or target its value through market intervention.
Penalty clause: A clause found in contract agreements that provides for a penalty in the event of default.
Penalty tax: A federal tax that can be applied if a plan holder does not meet certain requirements when making withdrawals from a tax-advantaged retirement plan (for instance, if the plan holder has not reached age 59-1/2). This penalty tax is owed in addition to any income taxes due.
Pennant: A chart pattern resembling a pointed flag, with the point facing to the right, which shows a diminishing variance of price.
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 OTC, many of them in the local markets of Denver, Vancouver, or Salt Lake City.
Pension Benefit Guaranty Corporation (PBGC): A federal agency that insures the vested benefits of pension plan participants (established in 1974 by the ERISA legislation).
Pension fund: A fund set up to pay the pension benefits of a company's workers after retirement.
Pension liabilities: Future liabilities resulting from pension commitments made by a corporation. Accounting for pension liabilities varies widely by country.
Pension parachute: A form of poison pill providing that in the event of a hostile takeover attempt, any excess pension plan assets can be used to benefit pension plan participants. This prevents the raiding firm from using the pension assets to finance the takeover.
Pension plan: A fund that is established for the payment of retirement benefits.
Pension reversion: Termination of an overfunded defined benefit pension plan and replacement of it with a life insurance company-sponsored fixed annuity plan.
Pension sponsors: Organizations that have established a pension plan.
Penultimate profit prospect (PPP): The second-lowest-priced of the ten highest-yielding stocks in the Dow Jones Industrial Average that is said (by authors O'Higgins and Downes) to be the Dow stock with the best possibility of outperforming the average as a whole.
People pill: A form of poison pill providing that the entire management threatens to resign in the event of a takeover.
Per capita debt: The total bonded debt of a municipality divided by the population of the municipality.
Per stirpes: A method for distributing the assets of an individual who dies without a valid will. The Latin means for each descendant.
Percent to double: Percentage that the stock price has to rise (fall) to double the price of the call (put).
Percentage financial statement: Balance sheet and income statement represented as percentages.
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: Applies mainly to convertible securities. Premium over parity of a convertible bond divided by parity.
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.
Perfect forecast line: Graph of a slope that matches the forecast of an exchange rate with the actual exchange rate.
Perfect hedge: A situation in which the profit and loss from the underlying asset and the hedge position are equal.
Perfect market assumptions: Conditions under which the law of one price holds. The assumptions include frictionless markets, rational investors, and equal access to market prices and information.
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.
Perfected first lien: A first attachment on an asset that is duly recorded with the relevant government body so that the lender will be able to act on it should the borrower default.
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 certain conditions: (1) Trading is costless, and access to the financial markets is free; (2)information about borrowing and lending opportunities is freely available; and (3) there are many traders, and no single trader can have a significant impact on market prices.
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 questions such as: (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 bond: A surety bond between two parties, insuring one party against loss if the terms of a contract are not fulfilled.
Performance evaluation: The assessment of a manager's results, 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 fund: A growth-oriented mutual fund investing in growth stock and performance stock with low dividends and high risk.
Performance index: A risk-adjusted measure of how well a portfolio has performed.
Performance measurement: Calculation of the return a money manager realizes 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 shareholders sometimes use to tie management to the self-interest of shareholders.
Performance stock: High-growth stock in a company that retains earnings for further growth and therefore pays no dividends, but that an investor feels has significant future potential.
Period-certain annuity: An annuity that provides guaranteed payments to an annuitant for a specified period of time.
Period of digestion: The time period of often high volatility after a new issue is released when the trading price of the security is established by the market.
Periodic call auction: Selling stocks by bid at intervals throughout the day.
Periodic payment plan: Accumulation of capital in a mutual fund by making regular payments on a monthly or quarterly basis.
Periodic payments: A series of payments from an annuity, qualified retirement plan, or 403(b)(7) account made over a certain term of years. A payment from an IRA, even if over a period of years, is not considered a periodic payment for tax purposes.
Periodic purchase deferred contract: A fixed or variable annuity contract for which fixed-amount premiums are paid either monthly or quarterly, and that does not begin paying out until a time elected by the annuitant.
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.
Permanent Assets: Fixed assets (plant and equipment) and permanent current assets.
Permanent Current Assets: The minimum level of current assets that a firm needs to continue operation. Because some level is always maintained, they are called permanent current assets.
Permanent financing: Long-term financing using either debt or equity.
Permanent spontaneous current Liabilities: The minimum level of spontaneous liabilities that is always maintained by a firm.
Perpendicular spread: Option strategy involving the purchase of options with similar expiration dates and different exercise prices.
Perpetual bond: Nonredeemable bond with no maturity date that pays regular interest rates indefinitely.
Perpetual inventory: Recordkeeping system in which book inventory is updated daily.
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 decoration.
Personal article floater: Insurance policy attachment designed to cover specified personal valuables.
Personal exemption: Amount of money a taxpayer can exclude from personal income for each member of the household in calculation of a tax obligation.
Personal income: Total income received from all sources, including wages, salaries, or rents, and the like.
Personal inflation rate: The inflation rate as it affects a specific individual.
Personal property: Any assets other than real estate.
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 of 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.
Petrodollars: Deposits by countries that receive dollar revenues from the sale of petroleum to other countries; the term commonly refers to OPEC deposits of dollars in the Eurocurrency market.
Phantom income: Income from a limited partnership that creates taxability without generating cash flow.
Phantom stock plan: An incentive scheme that awards management bonuses based on increases in the market price of the company's stock.
Phase space: A graph which shows all possible states of a system. In phase space we plot the value of a variable against possible values of the other variables at the same time. If a system had three descriptive variables, we plot the phase space in three dimensions, with each variable taking one dimension.
Philadelphia Board of Trade (PBOT): A subsidiary of the Philadelphia Stock Exchange that trades currency futures.
Philadelphia Stock Exchange (PHLX): A securities exchange trading American and European foreign currency options on spot exchange rates.
Philippine Stock Exchange: Stock exchange based in the Philippines, which operates two trading floors, at Manila and Makati.
Phillips Curve: A graph that supposedly shows the relationship between inflation and unemployment. It is conjectured that there is a simple trade-off between inflation and unemployment (high inflation and low unemployment, and low inflation and high unemployment). Named after A.W. Phillips. Obviously, the relation between these important macroeconomic variables is more complicated than this simple graph would suggest. For a modern treatment, see work of Robert Lucas.
Phone switching: Transferring money between funds in the same mutual fund 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.
Physical asset: Actual property such as precious metals or real estate. Also called real or tangible assets.
Physical commodity: See: Commodity
Physical verification: A procedure auditors use to ensure that inventory recorded in the book is correct by actually checking out the physical inventory.
P & I: Stands for principal and interest on bonds or mortgage-backed securities.
Pickup: The gain in yield that occurs when a block of bonds is swapped for another block of higher-coupon bonds.
Pickup bond: A bond with a relatively high coupon that is close to the date at which it is callable, meaning that a fall in interest rates will most likely cause early redemption of the bond at a premium.
Picture: Describes bid and asked prices a broker quotes 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: Apply mainly to convertible securities. Increment of bonds that trade in portions of $1000 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 capital markets.
Piggyback registration: When a securities underwriter allows existing holdings of shares in a corporation to be sold in combination with an offering of new public shares.
Piggybacking: A broker who trading stocks, bonds or commodities in a personal account following a trade just made for a customer. The broker assumes that the customer is making the trade on valuable inside information.
PIK (Payment-in-kind) securities: Highly speculative bonds or preferred stock that pay interest or dividends through additional bonds or preferred stock.
Pink sheets: Refers to over-the-counter trading. Daily publication of the national quotation bureau that reports the bid and ask prices of thousands of OTC stocks, as well as the market makers who trade each stock.
Pip: Used for listed equity securities. Smallest unit of a currency (i.e., cents for US dollars).
Pipeline: The underwriting process that must be completed with the SEC before a security can be offered for sale to the public.
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.
PITI: Stands for principal, interest, taxes, and insurance, the four main parts of monthly mortgage obligations.
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.
P&L: Profit and loss statement for a trader.
Place: The marketing of new securities, usually through sales to institutional investors. See: Float.
Placement: A bank depositing Eurodollars with (selling Eurodollars to) another bank is often said to be making a placement.
Placement ratio: The percentages of last week's new municipal bond offerings that have been bought from the underwriters, according to the Bond Buyer newspaper.
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.
Plain vanilla swap: See: Fixed for floating swap
Plan agreement: A document detailing the terms and conditions of a retirement plan such as an IRA.
Plan participants: Employees or other beneficiaries who are eligible to receive benefits from a company's employee benefit plan.
Plan for reorganization: A plan for reorganizing a firm during the Chapter 11 bankruptcy process.
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.
Planned amortization class (PAC): (1) The class of CMO that has the most stable cash flows and the lowest prepayment risk of any class of CMO Because of a stable cash flow, it is considered the least risky CMO (2) A CMO bond class that stipulates cash flow contributions to a sinking fund. A PAC directs principal payments to the sinking fund on a priority basis in accordance with a predetermined payment schedule, with prior claim to the cash flows before other CMO 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 PAC is therefore very stable over a wide range of prepayment experience.
Planned capital expenditure program: Budgeted or projected outlays for major expenditures on permanent or fixed assets as outlined in the corporate financial plan.
Planned financing program: Budgeted or projected ways need for reasons or to obtain short-term and long-term financing as outlined in the corporate financial plan.
Planning horizon: The length of time a model or investor or plan projects into the future.
Plant: The assets of a business including land, buildings, machinery, and all equipment permanently employed.
Player: Used in the context of general equities. Customer or trader who is actively involved in a particular stock or the market in general.
Playing the market: Trading in high, uncalculated risk usually refers to actions of amateur investors.
Plaza Accord: Agreement among country representatives in 1985 to implement a coordinated program to weaken the dollar.
Pledging: See: Hypothecation
Plow back: To reinvest earnings in a business rather than pay out them out as dividends. Common practice in high-growth companies.
Plowback rate: Related: Retention rate
Plug: A variable that handles financial slack in the financial plan.
Plus: Used to quote a price in 64ths. 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 own 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 used solely to record changes in price.
Point Attractor: In non-linear dynamics, an attractor where all orbits in phase space are drawn to one point, or value. Essentially, any system which tends to a stable, single valued equilibrium will have a point attractor. A pendulum which is damped by friction will always stop, so its phase space will always be drawn to the point where velocity and position are equal to zero. See: Attractor, Phase Space.
Points quote: An abbreviated form of the outright quote used by traders in the interbank market.
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 government agents are said to be instructed to swallow if capture is imminent.
Poison put: A covenant allowing the bondholder to demand repayment in the event of a hostile takeover.
Policy asset allocation: Way in which an investor seeks to assess an appropriate long-term "normal" mix of assets that represents an ideal blend of controlled risk and enhanced return.
Policy limit: The maximum dollar amount of coverage provided by an insurance company for a certain policy.
Policy loan: A loan often made at a below-market interest rate from an insurance company to a policyholder that is secured by the cash surrender value of a life insurance policy.
Policyholder: An individual who owns an insurance policy.
Policyholder loan bonds: Packaged loans acquired by policyholders that are secured by the cash surrender value of the policies, and are offered by a broker/dealer as bonds.
Political risk: Possibility of negative events such as 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: In capital budgeting, the concept that investment projects are financed out of a pool of bonds, preferred stock, and common stock, and a weighted-average cost of capital must be used to calculate investment returns. In insurance, a group of insurers who share premiums and losses in order to spread risk. In investments, the combination of funds for the benefit of a common project, or a group of investors who use their combined influence to manipulate prices.
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) MBSs.
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.
Portability: The character of benefits that may be carried from a previous job to the next.
Portfolio: A collection of investments, real and/or financial.
Portfolio allocation by region: The distribution, by geographic region, of a portfolio's holdings.
Portfolio asset allocation: The distribution, by type of asset, of a portfolio's holdings.
Portfolio beta: Used in the context of general equities. The beta of a portfolio is the weighted sum of the individual asset betas, According to the proportions of the investments in the portfolio. E.g., if 50% of the money is in stock A with a beta of 2.00, and 50% of the money is in stock B with a beta of 1.00,the portfolio beta is 1.50. Portfolio beta describes relative volatilityof 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 diversification: Investing in different asset classes and in securities of many issuers in an attempt to reduce overall investment risk and to avoid damaging a portfolio's performance by the poor performance of a single security, industry, (or country).
Portfolio expected return: A weighted average of individual assets' expected returns.
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 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 opportunity set: The expected return/standard deviation pairs of all portfolios that can be constructed from a given set of assets.
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 restructuring: Applies to derivative products. Recomposition 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 separation theorem: Theory that an investor's choice of a risky investment portfolio is separate from his attitude towards risk. Related: Fisher's separation theorem.
Portfolio theory: See: Modern portfolio theory.
Portfolio transaction costs: The expenses associated with buying and selling securities, including commissions, purchase and redemption fees, exchange fees, and other miscellaneous costs. In a mutual fund prospectus, these expenses are listed separately from the fund's expense ratio.
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 building: Buying shares to build up a long position or selling shares to create a short position in a particular security or group of securities.
Position diagram: Diagram showing the possible payoffs from a derivative investment.
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.
Position trader: A commodities trader who takes a long-term approach in maintaining positions in the market and does not close out of these positions until close to the delivery date.
Positive carry: Related: Net financing cost
Positive convexity: A property of option-free bonds that 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.
Positive float: See: Float
Positive yield curve: When long-term debt interest rates are higher than short-term debt rates (because of the increased risk involved with long-term debt security).
Possessions corporation: A type of corporation permitted under the US tax code whose branch operation in a US possession 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.
Post-dated check: A check that becomes payable and negotiable on a future date specified.
Postponement option: The option of deferring a project without eliminating the possibility of undertaking it.
Postponing income: Purposely delaying receipt of income to a later year in order to reduce current tax liability.
Post-trade benchmarks: Prices after the decision to trade.
Pot: The portion of stock or bond issue that is returned to the managing underwriter by the participating investment bankers for sale to institutional investors.
Pot is clean: Phrase used when managing underwriter has sold the entire pot.
Power of attorney: A written authorization allowing a person to perform certain acts on behalf of another, such as moving of assets between accounts or trading for a person's benefit.
Prearranged trading: Possibly fraudulent practice whereby commodities dealers carry out risk-free trades at predetermined prices to acquire tax advantages.
Preauthorized checks (PAC): Checks that are authorized by a payer in advance, and written either by the payee or by the payee's bank and then deposited in the payee's bank account.
Preauthorized electronic debits (PAD): Debits to a bank account in advance by the payer. The payer's bank sends payment to the payee's bank through the Automated Clearing House (ACH) system.
Preauthorized payment: Accelerating cash inflows by directly charging a customer's bank account with permission.
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.
Precedence: The established system of priorities of trades in an exchange. For example, the highest bid and lowest offer have highest precedence; the first bid or first offer at a price has highest priority, and large orders have priority over smaller orders.
Precious metals: Gold, silver, platinum, and palladium, which are used for their intrinsic value or for their value in production. These may be traded either in their physical state or by way of futures and options contracts, mining company stocks, bonds, mutual funds, or other instrument.
Precompute: Method of charging interest in which the annual interest is either deducted from the face amount of the loan when the funds are distributed or is added to the total amount and divided into the regular payments.
Preemptive right: Common stockholders' right to anything of value distributed by the company.
Preference: Refers to over-the-counter trading. Selection of a dealer to handle a trade despite the dealer's market not being the best available. Often the "preferenced dealer" will then move his market in line.
Preference share: Preferred shares of a corporation that have first claim to preferred dividends.
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 dividend coverage: Net income after interest and taxes (before common stock dividends) divided by preferred stock dividends.
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. The theory rejects the assertion that the risk premium must rise uniformly with maturity, but instead profits that to the extent that the demand for and supply of funds do not match for a given maturity range, some participants will shift to maturities showing the opposite imbalances, as long as they 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 entitle them to be 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. Preferred stock has characteristics of both common stock and debt.
Preferred stock agreement: A contract for preferred stock.
Preferred stock ratio: Preferred stock at par value divided by total capitalization, which gives the portion of capitalization that consists of preferred stock.
PREG: Financial ratio defined as stock price divided by sales over earnings growth. Often used in the valuation of Internet stocks. Related: PSSG.
Preliminary estimate: The second estimate of GDP released about two months after the measurement period.
Preliminary prospectus: An initial or tentative version of a prospectus.
Premature distribution: A distribution from an IRA before the owner reaches age 59-1/2. Generally, a 10% penalty tax is owed on such a distribution. Also known as an early distribution or an early withdrawal.
Premium: (1) A bond sold above its par value. (2) The price of an option contract; also, in futures trading, the amount by which the futures price exceeds the price of the spot commodity. (3) For convertibles, amount by which the price of a convertible exceeds parity, and is usually expressed as a percentage. Suppose a stock is trading at $45, and the bond is convertible at a $50 stock price and the convertible bond trading at 105. A similar bond without the conversion feature trades at $90. In this case, the premium is $15, or 16.66%=(105-90)/90. If the premium is high, the bond trades like any fixed income bond; if low, like a stock. See: Gross parity, net parity. (4) 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. (5) For options, price of an option in the open market (sometimes refers to the portion of the price that exceeds parity). (6) 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.
Premium income: The income received by an investor who sells an option.
Premium raid: An attempt to acquire a large portion of a company's stock to gain control by offering stockholders a premium over the market value for their shares.
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.
Prepaid interest: An asset account showing interest that has been paid in advance, which is expensed and charged to the borrower's P & L statement.
Prepayment penalty: A fee a borrower pays a lender when the borrower repays a loan before its scheduled time of maturity.
Prepayment speed: Also called speed, the estimated rate at which mortgagors pay off their loans ahead of schedule, critical in assessing the value of mortgage pass-through securities.
Prepayments: Payments made in excess of scheduled mortgage principal repayments.
Prerefunded bond: Refunded bond.
Prerefunding: Procedure of floating a second bond at a lower interest rate in order to pay off the first bond at the first call date and to reduce overall borrowing costs.
Presale order: An order to purchase part of a new municipal bond issue that is accepted by an underwriting syndicate before an official public offering.
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 $100 x [1/(1 + 0.10)] = $91.
Present Value Components Analysis: An analytical tool that establishes a base NPV for a project that can then be adjusted for the incremental NPV effect of separate elements of the project's overall potential sales.
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 + 0.10)].
Present value of growth opportunities: Net present value (NPV) of investments the firm is expected to make in the future.
Present Value Index (PVI): The ratio of the NPV of a project to the initial outlay required for it. The index is an efficiency measure for investment decisions under capital rationing.
President: Highest-ranking officer in a corporation after the chief executive officer.
Presidential election cycle theory: A theory that stock market trends can be predicted and explained by the four-year presidential election cycle.
Pre-sold issue: An issue that is sold out before the coupon announcement.
Pre-tax contribution: Payment to an account made with funds from a worker's paycheck before federal income taxes are deducted.
Pretax earnings or profits: Net income before federal income taxes are subtracted.
Pretax rate of return: Gain on a security before taxes.
Pre-trade benchmarks: Prices occurring before or at the decision to trade.
Previous balance method: Method of calculating finance charges based on the account balance at the end of the previous month.
Price of admission: Used in the context of general equities. Cost to become a player in a stock in an inordinately aggressive market (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-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 change: Increase or decrease in the closing price of a security compared to the previous day's closing price.
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 continuity: Minimal price changes due to transactions.
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 are 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 effect: Impact of a change in interest rates on bond prices.
Price elasticities: The percentage change in quantity divided by a percentage change in the price. Answers the question: How much will the demand for my product decrease if I raise prices by 10%?
Price gap