Definition of Par yield curve

Par yield curve

The yield curve of bonds selling at par, or face, value.

Non-parallel shift in the yield curve

A shift in the yield curve in which yields do not change by the same
number of basis points for every maturity. Related: parallel shift in the yield curve.

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.

Bootstrapping, bootstrap method

An arithmetic method for backing an
implied zero curve out of the par yield curve.

Annual percentage yield (APY)

The effective, or true, annual rate of return. The APY is the rate actually
earned or paid in one year, taking into account the affect of compounding. The APY is calculated by taking
one plus the periodic rate and raising it to the number of periods in a year. For example, a 1% per month rate
has an APY of 12.68% (1.01^12).

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.

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.

Capital gains yield

The price change portion of a stock's return.

Comparative credit analysis

A method of analysis in which a firm is compared to others that have a desired
target debt rating in order to infer an appropriate financial ratio target.

Comparison universe

The collection of money managers of similar investment style used for assessing
relative performance of a portfolio manager.

Convenience yield

The extra advantage that firms derive from holding the commodity rather than the future.

Conversion parity price

Related:Market conversion price

Cost of limited partner capital

The discount rate that equates the after-tax inflows with outflows for capital
raised from limited partners.

Counterpart items

In the balance of payments, counterpart items are analogous to unrequited transfers in the
current account. They arise because the double-entry system in balance of payments accounting and refer to
adjustments in reserves owing to monetization or demonetization of gold, allocation or cancellation of SDRs,
and revaluation of the various components of total reserves.

Counterparties

The parties to an interest rate swap.

Counterparty Party

on the other side of a trade or transaction.

Counterparty risk

The risk that the other party to an agreement will default. In an options contract, the risk
to the option buyer that the option writer will not buy or sell the underlying as agreed.
Country economic risk Developments in a national economy that can affect the outcome of an international
financial transaction.

Coupon equivalent yield

True interest cost expressed on the basis of a 365-day year.

Current yield

For bonds or notes, the coupon rate divided by the market price of the bond.

Debt service parity approach

An analysis wherein the alternatives under consideration will provide the firm
with the exact same schedule of after-tax debt payments (including both interest and principal).

Dividend yield (Funds)

Indicated yield represents return on a share of a mutual fund held over the past 12
months. Assumes fund was purchased 1 year ago. Reflects effect of sales charges (at current rates), but not
redemption charges.

Dividend yield (Stocks)

Indicated yield represents annual dividends divided by current stock price.

Earnings yield

The ratio of earnings per share after allowing for tax and interest payments on fixed interest
debt, to the current share price. The inverse of the price/earnings ratio. It's the Total Twelve Months earnings
divided by number of outstanding shares, divided by the recent price, multiplied by 100. The end result is
shown in percentage.

Effective annual yield

Annualized interest rate on a security computed using compound interest techniques.

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.

Equivalent taxable yield

The yield that must be offered on a taxable bond issue to give the same after-tax
yield as a tax-exempt issue.

Fisher's separation theorem

The firm's choice of investments is separate from its owner's attitudes towards
investments. Also refered to as portfolio separation theorem.

Flattening of the yield curve

A change in the yield curve where the spread between the yield on a long-term
and short-term Treasury has decreased. Compare steepening of the yield curve and butterfly shift.

General partner

A partner who has unlimited liability for the obligations of the partnership.

General partnership

A partnership in which all partners are general partners.

Golden parachute

Compensation paid to top-level management by a target firm if a takeover occurs.

High-yield bond

See:junk bond.

Indicated yield

The yield, based on the most recent quarterly rate times four. To determine the yield, divide
the annual dividend by the price of the stock. The resulting number is represented as a percentage. See:
dividend yield.

Indifference curve

The graphical expression of a utility function, where the horizontal axis measures risk and
the vertical axis measures expected return. The curve connects all portfolios with the same utilities according
to g and s .

Interest rate parity theorem

Interest rate differential between two countries is equal to the difference
between the forward foreign exchange rate and the spot rate.

J-curve

Theory that says a country's trade deficit will initially worsen after its currency depreciates because
higher prices on foreign imports will more than offset the reduced volume of imports in the short-run.

Limited partner

A partner who has limited legal liability for the obligations of the partnership.

Limited partnership

A partnership that includes one or more partners who have limited liability.

Liquid yield option note (LYON)

Zero-coupon, callable, putable, convertible bond invented by Merrill

Limited partnership

A partnership that includes one or more partners who have limited liability.

Liquid yield option note (LYON)

Zero-coupon, callable, putable, convertible bond invented by Merrill Lynch & Co.

Master limited partnership (MLP)

A publicly traded limited partnership.

Par value

Also called the maturity value or face value, the amount that the issuer agrees to pay at the maturity date.

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.

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 value

Related:conversion value

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.

Participating fees

The portion of total fees in a syndicated credit that go to the participating banks.

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.

PIBOR (Paris Interbank Offer Rate)

The deposit rate on interbank transactions in the Eurocurrency market
quoted in paris.

Portfolio separation theorem

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

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.

Pure yield pickup swap

Moving to higher yield bonds.

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
and buying a put will deliver the exact payoff as buying one call and investing the present value (PV) of the
exercise price. The call value equals C=S+P-PV(k).

Realized compound yield

yield assuming that coupon payments are invested at the going market interest
rate at the time of their receipt and rolled over until the bond matures.

Relative purchasing power parity (RPPP)

Idea that the rate of change in the price level of commodities in
one country relative to the price level in another determines the rate of change of the exchange rate between
the two countries' currencies.

Relative yield spread

The ratio of the yield spread to the yield level.

Reoffering yield

In a purchase and sale, the yield to maturity at which the underwriter offers to sell the bonds
to investors.

Required yield

Generally referring to bonds, the yield required by the marketplace to match available returns
for financial instruments with comparable risk.

Riding the yield curve

Buying long-term bonds in anticipation of capital gains as yields fall with the
declining maturity of the bonds.

Separation property

The property that portfolio choice can be separated into two independent tasks: 1)
determination of the optimal risky portfolio, which is a purely technical problem, and 2) the personal choice
of the best mix of the risky portfolio and the risk-free asset.

Separation theorem

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

Spot futures parity theorem

Describes the theoretically correct relationship between spot and futures prices.
Violation of the parity relationship gives rise to arbitrage opportunities.

Spot rate curve

The graphical depiction of the relationship between the spot rates and maturity.

Steepening of the yield curve

A change in the yield curve where the spread between the yield on a long-term
and short-term Treasury has increased. Compare flattening of the yield curve and butterfly shift.

Stopping curve

A curve showing the refunding rates for different points in time at which the expected value
of refunding immediately equals the expected value of waiting to refund.

Stopping curve refunding rate

A refunding rate that falls on the stopping curve.

Strip mortgage participation certificate (strip PC)

Ownership interests in specified mortgages purchased
by Freddie Mac from a single seller in exchange for strip PCs representing interests in the same mortgages.
Stripped bond Bond that can be subdivided into a series of zero-coupon bonds.

Subpart F

Special category of foreign-source "unearned" income that is currently taxed by the IRS whether
or not it is remitted to the U.S.

Theoretical spot rate curve

A curve derived from theoretical considerations as applied to the yields of
actually traded Treasury debt securities because there are no zero-coupon Treasury debt issues with a maturity
greater than one year. Like the yield curve, this is a graphical depiction of the term structure of interest rates.

Two-fund separation theorem

The theoretical result that all investors will hold a combination of the riskfree
asset and the market portfolio.

Weighted average portfolio yield

The weighted average of the yield of all the bonds in a portfolio.

Yield

The percentage rate of return paid on a stock in the form of dividends, or the effective rate of interest
paid on a bond or note.

Yield curve

The graphical depiction of the relationship between the yield on bonds of the same credit quality
but different maturities. Related: Term structure of interest rates. Harvey (1991) finds that the inversions of
the yield curve (short-term rates greater than long term rates) have preceded the last five U.S. recessions. The
yield curve can accurately forecast the turning points of the business cycle.

Yield curve option-pricing models

Models that can incorporate different volatility assumptions along the
yield curve, such as the Black-Derman-Toy model. Also called arbitrage-free option-pricing models.

Yield curve strategies

Positioning a portfolio to capitalize on expected changes in the shape of the Treasury yield curve.

Yield ratio

The quotient of two bond yields.

Yield spread strategies

Strategies that involve positioning a portfolio to capitalize on expected changes in
yield spreads between sectors of the bond market.

Yield to call

The percentage rate of a bond or note, if you were to buy and hold the security until the call date.
This yield is valid only if the security is called prior to maturity. Generally bonds are callable over several
years and normally are called at a slight premium. The calculation of yield to call is based on the coupon rate,
length of time to the call and the market price.

Yield to maturity

The percentage rate of return paid on a bond, note or other fixed income security if you
buy and hold it to its maturity date. The calculation for YTM is based on the coupon rate, length of time to
maturity and market price. It assumes that coupon interest paid over the life of the bond will be reinvested at
the same rate.

Yield to worst

The bond yield computed by using the lower of either the yield to maturity or the yield to call
on every possible call date.

CAPITAL IN EXCESS OF PAR VALUE

What a company collected when it sold stock for more than the par value per share.

PAR VALUE

An arbitrary value that a company may assign to its stock. par value has no relationship to what the stock is selling for on the open market.

Capital in excess par

Amounts in excess of the par value or stated value that have been paid by the public to acquire stock in the company; synonymous with additional paid-in capital.

No par value stock

Stock issued by the company that does not have an arbitrary value (par value) assigned to it.

Par value

An arbitrary value assigned by the company to each share of stock; it is used in the accounting for the sale of stock and in some jurisdictions for calculating taxes.

dividend yield ratio

Cash dividends paid by a business over the most
recent 12 months (called the trailing 12 months) divided by the current
market price per share of the stock. This ratio is reported in the daily
stock trading tables in the Wall Street Journal and other major newspapers.

Bond Equivalent Yield

Bond yield calculated on an annual percentage rate method

Effective Annual Yield

Annualized rate of return on a security computed using compound
interest techniques

Par Value

Nominal value of a security. Same as face value.

Yield Curve

A graphical representation of the level of interest rates for
securities of differing maturities at a specific point of time

Yield to Maturity

The measure of the average rate of return that will be earned on a
debt security held until it matures

administrative department

an organizational unit that performs management activities benefiting the entire organization;
includes top management personnel and organization
headquarters

cost-benefit analysis the analytical process of comparing the

relative costs and benefits that result from a specific course
of action (such as providing information or investing in a
project)

golden parachute

a benefits package that is triggered by the
termination of a manager’s employment

incremental separate cost

the cost that is incurred for each
joint product between the split-off point and the point of sale

labor yield variance

(standard mix X actual hours X standard rate) - (standard mix X standard hours X standard rate);
it shows the monetary impact of using more or fewer total hours than the standard allowed

learning curve

a model that helps predict how labor time
will decrease as people become more experienced at performing
a task and eliminate the inefficiencies associated
with unfamiliarity

limited liability partnership

an organizational form that is a hybrid of the corporate and partnership organizational
forms and used to limit the personal liability of the owners;
it is typically used by large professional (such as accounting) firms

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