Definition of accretion

accretion

an increase in units or volume caused by the addition
of material or by factors inherent in the production process

Accretion (of a discount)

In portfolio accounting, a straight-line accumulation of capital gains on discount
bond in anticipation of receipt of par at maturity.

Z bond

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

Deep-discount bond

A bond issued with a very low coupon or no coupon and selling at a price far below par
value. When the bond has no coupon, it's called a zero coupon bond.

Discount bond

Debt sold for less than its principal value. If a discount bond pays no interest, it is called a
zero coupon bond.

Discount Bond

A bond with no coupons, priced below its face value; the return on this bond comes from the difference between its face value and its current price.

Pure-discount bond

A bond that will make only one payment of principal and interest. Also called a zerocoupon
bond or a single-payment bond.

Accrual bond

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

ad hoc discount

a price concession made under competitive pressure (real or imagined) that does not relate to quantity purchased

ADF (annuity discount factor)

the present value of a finite stream of cash flows for every beginning $1 of cash flow.

Bank discount basis

A convention used for quoting bids and offers for treasury bills in terms of annualized
yield , based on a 360-day year.

Bearer bond

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

Bond

bonds are debt and are issued for a period of more than one year. The U.S. government, local
governments, water districts, companies and many other types of institutions sell bonds. When an investor
buys bonds, he or she is lending money. The seller of the bond agrees to repay the principal amount of the
loan at a specified time. Interest-bearing bonds pay interest periodically.

BOND

A long-term, interest-bearing promissory note that companies may use to borrow money for periods of time such as five, ten, or twenty years.

Bond

A long-term debt instrument in which the issuer (borrower) is
obligated to pay the investor (lender) a specified amount of
money, usually at specific intervals, and to repay the principal
amount of the loan at maturity. The periodic payments are based
on the rate of interest agreed upon at the time the instrument is
sold.

bond

Security that obligates the issuer to make specified payments
to the bondholder.

Bond

A financial asset taking the form of a promise by a borrower to repay a specified amount (the bond's face value) on a maturity date and to make fixed periodic interest payments.

Bond

Usually a fixed interest security under which the issuer contracts to pay the lender a fixed principal amount at a stated date in the future, and a series of interest payments, either semi-annually or annually. Interest payments may vary through the life of bond.

bond

A debt security issued by a government or company. You receive regular interest payments at specified rates while you hold the bond and you receive the face value when it matures. Short-term bonds mature in less than five years; medium-term bonds mature in six to ten years; and long-term bonds mature in eleven years or greater.

Bond

Fixed interest security issued by a corporation or government, having a specific maturity date.

Bond agreement

A contract for privately placed debt.

Bond covenant

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

Bond-equivalent basis

The method used for computing the bond-equivalent yield.

Bond equivalent yield

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

Bond-equivalent yield

The annualized yield to maturity computed by doubling the semiannual yield.

Bond Equivalent Yield

bond yield calculated on an annual percentage rate method

Bond indenture

The contract that sets forth the promises of a corporate bond issuer and the rights of
investors.

Bond indexing

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

Bond points

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

Bond value

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

BONDPAR

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

Bonds payable

Amounts owed by the company that have been formalized by a legal document called a bond.

Brady bonds

bonds issued by emerging countries under a debt reduction plan.

Bull-bear bond

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

Bulldog bond

Foreign bond issue made in London.

Callable bond

A bond that allows the issuer to buy back the bond at a
predetermined price at specified future dates. The bond contains an embedded
call option; i.e., the holder has sold a call option to the issuer. See Puttable
bond.

callable bond

bond that may be repurchased by the issuer before maturity at specified call price.

Canada Savings Bonds

A bond issued each year by the federal government. These bonds can be cashed in at any time for their full face value.

Cash discount

An incentive offered to purchasers of a firm's product for payment within a specified time
period, such as ten days.

Collateral trust bonds

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

Completion bonding

Insurance that a construction contract will be successfully completed.

Conflict between bondholders and stockholders

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

constant-growth dividend discount model

Version of the dividend discount model in which dividends grow at a constant rate.

Continuous Discounting

The process of calculating the present value of a stream of future
cash flows by discounting over a continuous period of time

convertible bond

bond that the holder may exchange for a specified number of shares.

Convertible bonds

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

Convertible eurobond

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

Corporate bonds

Debt obligations issued by corporations.

Coupon Bond

Any bond with a coupon. Contrast with discount bond.

Cushion bonds

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

Debenture bond

An unsecured bond whose holder has the claim of a general creditor on all assets of the
issuer not pledged specifically to secure other debt. Compare subordinated debenture bond, and collateral
trust bonds.

Discount

Referring to the selling price of a bond, a price below its par value. Related: premium.

Discount

The percentage amount at which bonds sell below their par value. Also the percentage amount at which a currency sells on the forward market below its current rate on the spot market.

Discount curve

The curve of discount rates vs. maturity dates for bonds.

Discount factor

Present value of $1 received at a stated future date.

discount factor

Present value of a $1 future payment.

Discount period

The period during which a customer can deduct the discount from the net amount of the bill
when making payment.

discount rate

the rate of return on investment that would be required by a prudent investor to invest in an asset with a specific level risk. Also, a rate of return used to convert a monetary sum, payable or receivable in the future, into present value.

Discount rate

The interest rate that the Federal Reserve charges a bank to borrow funds when a bank is
temporarily short of funds. Collateral is necessary to borrow, and such borrowing is quite limited because the
Fed views it as a privilege to be used to meet short-term liquidity needs, and not a device to increase earnings.

Discount Rate

The rate of interest used to calculate the present value of a stream
of future cash flows

discount rate

the rate of return used to discount future cash
flows to their present value amounts; it should equal or
exceed an organization’s weighted average cost of capital

discount rate

Interest rate used to compute present values of future cash flows.

Discount Rate

The interest rate at which the Fed is prepared to loan reserves to commercial banks.

Discount Rate

A rate of return used to convert a monetary sum, payable or receivable in the future, into present value.

Discount securities

Non-interest-bearing money market instruments that are issued at a discount and
redeemed at maturity for full face value, e.g. U.S. Treasury bills.

Discount window

Facility provided by the Fed enabling member banks to borrow reserves against collateral
in the form of governments or other acceptable paper.

Discount Window

The Federal Reserve facility at which reserves are loaned to banks at the discount rate.

Discounted basis

Selling something on a discounted basis is selling below what its value will be at maturity,
so that the difference makes up all or part of the interest.

Discounted cash flow

A technique that determines the present value of future cash
flows by applying a rate to each periodic cash flow that is derived from the cost of
capital. Multiplying this discount by each future cash flow results in an amount that
is the present value of all the future cash flows.

Discounted Cash Flow

Techniques for establishing the relative worth of a future investment by discounting (at a required rate of return) the expected net cash flows from the project.

Discounted cash flow (DCF)

Future cash flows multiplied by discount factors to obtain present values.

Discounted cash flow (DCF)

A method of investment appraisal that discounts future cash flows to present value using a discount rate, which is the risk-adjusted cost of capital.

discounted cash flow (DCF)

Refers to a capital investment analysis technique
that discounts, or scales down, the future cash returns from an
investment based on the cost-of-capital rate for the business. In essence,
each future return is downsized to take into account the cost of capital
from the start of the investment until the future point in time when the
return is received. Present value (PV) is the amount resulting from discounting
the future returns. Present value is subtracted from the entry
cost of the investment to determine net present value (NPV). The net
present value is positive if the present value is more than the entry cost,
which signals that the investment would earn more than the cost-ofcapital
rate. If the entry cost is more than the present value, the net
present value is negative, which means that the investment would earn
less than the business’s cost-of-capital rate.

Discounted dividend model (DDM)

A formula to estimate the intrinsic value of a firm by figuring the
present value of all expected future dividends.

Discounted payback period rule

An investment decision rule in which the cash flows are discounted at an
interest rate and the payback rule is applied on these discounted cash flows.

Discounting

Calculating the present value of a future amount. The process is opposite to compounding.

Discounting

The process of calculating the present value of a stream of future
cash flows

discounting

the process of reducing future cash flows to present value amounts

Discounting

Calculating the present value of a future payment.

Discounting

The process of finding the present value of a series of future cash flows. discounting is the reverse of compounding.

Discounting of Accounts Receivable

Short-term financing in which accounts receivable are used as collateral to secure a loan. The lender does not buy the accounts receivable but simply uses them as collateral for the loan. Also called pledging of accounts receivable.

dividend discount model

Computation of today’s stock price which states that share value equals the present value of all expected future dividends.

Dividend discount model (DDM)

A model for valuing the common stock of a company, based on the
present value of the expected cash flows.

DLOC (discount for lack of control)

an amount or percentage deducted from a pro rata share of the value of 100% of an equity interest in a business, to reflect the absence of some or all of the powers of control.

DLOM (discount for lack of marketability)

an amount or percentage deducted from an equity interest to reflect lack of marketability.

Documented discount notes

Commercial paper backed by normal bank lines plus a letter of credit from a
bank stating that it will pay off the paper at maturity if the borrower does not. Such paper is also referred to as
LOC (letter of credit) paper.

Dollar bonds

Municipal revenue bonds for which quotes are given in dollar prices. Not to be confused with
"U.S. Dollar" bonds, a common term of reference in the Eurobond market.

Dollar price of a bond

Percentage of face value at which a bond is quoted.

Equivalent bond yield

Annual yield on a short-term, non-interest bearing security calculated so as to be
comparable to yields quoted on coupon securities.

Eurobond

A bond that is (1) underwritten by an international syndicate, (2) offered at issuance
simultaneously to investors in a number of countries, and (3) issued outside the jurisdiction of any single
country.

Eurobond

A debt security issued in a market other than the home market of
the company issuing the security

eurobond

bond that is marketed internationally.

Eurodollar bonds

Eurobonds denominated in U.S.dollars.

Euroyen bonds

Eurobonds denominated in Japanese yen.

Extendable bond

bond whose maturity can be extended at the option of the lender or issuer.

Flower bond

Government bonds that are acceptable at par in payment of federal estate taxes when owned by
the decedent at the time of death.

Foreign bond

A bond issued on the domestic capital market of anther company.

Foreign bond market

That portion of the domestic bond market that represents issues floated by foreign
companies to governments.

Forward discount

A currency trades at a forward discount when its forward price is lower than its spot price.

fractional interest discount

the combined discounts for lack of control and marketability. g the constant growth rate in cash flows or net income used in the ADF, Gordon model, or present value factor.

Full coupon bond

A bond with a coupon equal to the going market rate, thereby, the bond is selling at par.

General obligation bonds

Municipal securities secured by the issuer's pledge of its full faith, credit, and
taxing power.

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