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Definition of Covenants
Promise usually made in a contract whereby a party to the contract promises to do or not to do specified things.
Provisions in a bond indenture or preferred stock agreement that require the bond or preferred
Provisions that place constraints on the operations of borrowers, such as restrictions on
Express stipulations included in loan agreements that are designed to monitor
Loan covenants designed to limit a corporate borrower's behavior
Loan covenants expressing minimum and maximum financial measures
A promise made related to financial conditions or events. Often a promise not to allow certain balance sheet items or ratios to fall below an agreed level. Usually found in loan documents, as a protection mechanism.
These two groups may have interests in a corporation that
A feature of a debt or credit agreement that is designed to protect the lender or creditor. It is common to characterize covenants as either positive or negative covenants.
present value of a perpetuity with growth.
The option of terminating an investment earlier than originally planned.
A bond on which interest accrues, but is not paid to the investor during the time of accrual.
A merger or consolidation in which an acquirer purchases the selling firm's assets.
A merger or consolidation in which an acquirer purchases the acquiree's stock.
This doctrine says that a nation is sovereign within its own borders and its domestic
Publicly traded issues that may be collateralized by mortgages and MBSs.
A bond covenant that specifies certain actions the firm must take.
American Stock Exchange (AMEX)
The second-largest stock exchange in the United States. It trades
A firm's productive resources.
A common element of a financial plan that describes projected capital spending and the
Auction rate preferred stock (ARPS)
Floating rate preferred stock, the dividend on which is adjusted every
Average cost of capital
A firm's required payout to the bondholders and to the stockholders expressed as a
Balance of payments
A statistical compilation formulated by a sovereign nation of all economic transactions
bonds that are not registered on the books of the issuer. such bonds are held in physical form by
Beta equation (Stocks)
The beta of a stock is determined as follows:
bonds are debt and are issued for a period of more than one year. The U.S. government, local
A contract for privately placed debt.
A contractual provision in a bond indenture. A positive covenant requires certain actions, and
Bond equivalent yield
bond yield calculated on an annual percentage rate method. Differs from annual
The contract that sets forth the Promises of a corporate bond issuer and the rights of
Designing a portfolio so that its performance will match the performance of some bond index.
A conventional unit of measure for bond prices set at $10 and equivalent to 1% of the $100 face
With respect to convertible bonds, the value the security would have if it were not convertible
The method used for computing the bond-equivalent yield.
The annualized yield to maturity computed by doubling the semiannual yield.
A system that monitors and evaluates the performance of a fixed-income portfolio , as well as the
bonds issued by emerging countries under a debt reduction plan.
Break-even lease payment
The lease payment at which a party to a prospective lease is indifferent between
Break-even payment rate
The prepayment rate of a MBS coupon that will produce the same CFY as that of
Bretton Woods Agreement
An agreement signed by the original United Nations members in 1944 that
Builder buydown loan
A mortgage loan on newly developed property that the builder subsidizes during the
bond whose principal repayment is linked to the price of another security. The bonds are
Foreign bond issue made in London.
The foreign market in the United Kingdom.
A guaranteed investment contract purchased with a single (one-shot) premium. Related:
Mortgages in which monthly payments consist of principal and interest, with portions of these
Money invested in a firm.
Net result of public and private international investment and lending activities.
decision Allocation of invested funds between risk-free assets versus the risky portfolio.
Capital asset pricing model (CAPM)
An economic theory that describes the relationship between risk and
A firm's set of planned capital expenditures.
The process of choosing the firm's long-term capital assets.
Amount used during a particular period to acquire or improve long-term assets such as
The transfer of capital abroad in response to fears of political risk.
When a stock is sold for a profit, it's the difference between the net sales price of securities and
Capital gains yield
The price change portion of a stock's return.
A lease obligation that has to be capitalized on the balance sheet.
The difference between the net cost of a security and the net sale price, if that security is sold at a loss.
The market for trading long-term debt instruments (those that mature in more than one year).
Capital market efficiency
Reflects the relative amount of wealth wasted in making transactions. An efficient
Capital market imperfections view
The view that issuing debt is generally valuable but that the firm's
Capital market line (CML)
The line defined by every combination of the risk-free asset and the market portfolio.
Placing one or more limits on the amount of new investment undertaken by a firm, either
The makeup of the liabilities and stockholders' equity side of the balance sheet, especially
Amounts of directly contributed equity capital in excess of the par value.
The debt and/or equity mix that fund a firm's assets.
A method of constructing a replicating portfolio in which the manager purchases a
Also called financial leverage ratios, these ratios compare debt to total capitalization
A table showing the capitalization of a firm, which typically includes the amount of
Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures
Interest that is not immediately expensed, but rather is considered as an asset and is then
Cash deficiency agreement
An agreement to invest cash in a project to the extent required to cover any cash
A dividend paid in cash to a company's shareholders. The amount is normally based on
Cash flow from operations
A firm's net cash inflow resulting directly from its regular operations
Cash settlement contracts
futures contracts, such as stock index futures, that settle for cash, not involving
An amount that would be accepted in lieu of a chance at a possible higher, but
Clearing House Automated Payments System (CHAPS)
A computerized clearing system for sterling funds
Clearing House Interbank Payments System (CHIPS)
An international wire transfer system for high-value
Collateral trust bonds
A bond in which the issuer (often a holding company) grants investors a lien on
The percentage of a given month's sales collected during the month of sale and each
The combination of all of the individual opinions about a stock's or security's value.
These are securities that represent equity ownership in a company. Common shares let an
Common stock/other equity
Value of outstanding common shares at par, plus accumulated retained
Common stock equivalent
A convertible security that is traded like an equity issue because the optioned
Common stock market
The market for trading equities, not including preferred stock.
Common stock ratios
Ratios that are designed to measure the relative claims of stockholders to earnings
Complete capital market
A market in which there is a distinct marketable security for each and every
Insurance that a construction contract will be successfully completed.
An undertaking either (1) to complete a project such that it meets certain specified
An understanding between a company and the host government that specifies the
Conditional sales contracts
Similar to equipment trust certificates except that the lender is either the
Conflict between bondholders and stockholders
These two groups may have interests in a corporation that
Continuous random variable
A random value that can take any fractional value within specified ranges, as
A term of reference describing a unit of trading for a financial or commodity future. Also, the actual
The month in which futures contracts may be satisfied by making or accepting a delivery.
bonds that can be converted into common stock at the option of the holder.
A eurobond that can be converted into another asset, often through exercise of
Convertible exchangeable preferred stock
Convertible preferred stock that may be exchanged, at the
Convertible preferred stock
preferred stock that can be converted into common stock at the option of the holder.
Debt obligations issued by corporations.
Cost of capital
The required return for a capital budgeting project.
Cost of limited partner capital
The discount rate that equates the after-tax inflows with outflows for capital
on the other side of a trade or transaction.
The risk that the other party to an agreement will default. In an options contract, the risk
A bond's interest payments.
The ability of the bankruptcy court to confirm a plan of reorganization over the objections of
Cumulative dividend feature
A requirement that any missed preferred or preference stock dividends be paid
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